Payments processor Visa completed the pilot test of the digital Hong Kong dollar (e-HKD) with two local banks — HSBC and Hang Seng Bank. The program was organized by the Hong Kong Monetary Authority (HKMA) and was part of the HKMA’s continuation of developing a central bank digital currency (CBDC) in Hong Kong.
The e-HKD pilot is the world’s first implementation of tokenized deposits for conducting inter-bank B2B self-transactions and cross-chain transactions. The goal of the pilot testing was to assess whether the system can handle scalability and interoperability.
The results were considered a success since it showed faster payment speeds, enhanced settlement risk management, improved control and increased transaction transparency.
Visa said they will further explore the applications of tokenized deposits mainly on asset market tokenization, programmable finance, expanded retail solutions and cross-border payments.
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Use Cases Explored
The first use case involves property payments — these kinds of payments are traditionally complex and time consuming for both institutions and clients. Property payments were given a breath of fresh air as the results showed CBDCs could modernize the process through tokenized deposits. According to the report, payments became almost instantaneous reducing the waiting time significantly and the program also showed how it could provide a more robust risk management system making it safer and secure.
The second use case focuses around settlements between payment institutions and merchants — the tests showed how CBDCs transfigure the way transactions are conducted through transparency. This means that both parties will have a clear view of the transaction process reducing disputes and misunderstandings between parties.
Visa’s Future Plans For Tokenized Deposits
The HKMA has not yet announced a timeline for the exact launch of a full-fledged e-HKD. But the successful pilot test suggests that the HKMA may be moving closer to launching a CBDC.
In the meantime, Visa is continuing to work with the HKMA and other local banks to develop new use cases for the e-HKD like programmable payments and other innovative financial applications.
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Final Thoughts
The results of the pilot program were positive and Visa reported that the system was able to achieve scalability and interoperability with transaction tests getting processed quickly and efficiently, and that the interbank B2B payment process was significantly faster than using traditional payment methods. The HKMA has praised the results of the program so it is more likely they will continue to collaborate with Visa and other institutions on the development of a CBDC in the city-state.