Hong Kong completed its central bank digital currency (CBDC) prototype, Project Aurum. It was a bit different from other retail CBDC projects because it included both a bank-brokered CBDC token and a CBDC-backed stablecoin.

The reason for testing a stablecoin is that it digitally mirrors Hong Kong’s cash system in which three commercial banks issue paper notes backed by central bank reserves.

The e-HKD initiative involved the Hong Kong Monetary Authority (HKMA) and the BIS Innovation Center with technical support from the Hong Kong Applied Science and Technology Research Institute (ASTRI).

With the intermediation approach adopted in the project, the central bank operates the interbank wholesale ledger and commercial banks distribute the CBDC, which is a liability of the central bank. Therefore, the solution involved a wholesale interbank system and a retail e-wallet system.

The BIS believes that this intermediate approach has several benefits. One is related to privacy because the central bank does not interact with consumers or have access to their data, leaving privacy, identity and anti-money laundering issues to the banks. Another is cyber resilience, given the separation of roles. However, there is a greater reliance on intermediaries.

The prototype source code is made available to the central banking community.

Since the project has been completed, in September, the Hong Kong Monetary Authority (HKMA) shared its CBDC roadmap as it moved from its research to development phase. The HKMA is also involved in the MBridge multi-CBDC project for cross-border payments. And it is working with the Bank of Israel on CBDC cybersecurity.