The Hong Kong Monetary Authority (HKMA) issued a white paper on Monday proposing a potential technical architecture and design for the infrastructure of a digital Hong Kong dollar. The paper is one of the deliverables outlined in Project e-HKD, a feasibility study announced by the HKMA in June 2021.
In 2017, Hong Kong began investigating the possibility of a digital Hong Kong dollar, or e-HKD. Project LionRock was the name given to this endeavor.
Significantly, in December 2019, the HKMA and the Bank of Thailand launched Project Inthanon-LionRock, a trial of cross-border transactions of wholesale central bank-backed digital currencies (CBDC). Wholesale CBDC transactions are restricted to financial institutions.
In February 2021, the two central banks expanded the scope of their cross-border experiment by inviting the central banks of China and the United Arab Emirates to participate and launching a multiple CBDC cross-border bridge.
The technical white paper, which was published on Monday, proposes a dual infrastructure for wholesale and retail CBDC. Retail CBDC is digital currency for personal and general-purpose use, specifically how banks distribute CBDC to customers.
According to the HKMA, the proposed architecture’s most significant breakthrough is its ability to protect transaction privacy.
The HKMA outlined seven problem statements with the proposed infrastructure — privacy, interoperability, performance and scalability, cybersecurity, compliance, operational robustness and resilience, and technology-enabled functional capabilities — and requested comments from academia and industry by the end of the year to address these issues.
The HKMA’s next deliverable is a legal and policy analysis, which is due in June 2022.