Hong Kong is to test connecting the Chinese mainland's digital yuan with its local payments network, officials said on Tuesday, the second stage of trials of the mainland's digital currency in the financial hub.

China's electronic yuan (e-CNY) is one of the most advanced central bank digital currency (CBDC) projects among major economies. Mainland officials say the project will be initially domestically focused, but cross-border trials are also underway in Hong Kong Special Administrative Region (SAR).

Countries around the world are looking at developing CBDCs to modernize their financial systems, ward off the threat from cryptocurrencies and speed up domestic and international payments.

This latest trial will explore how Hong Kong residents can top up an e-CNY digital wallet using the city's faster payment system, currently used to make local payments via mobile phones.

"This will help Hong Kong [SAR] residents to use e-CNY when they cross the border," Nelson Chow, chief fintech officer of the Hong Kong Monetary Authority (HKMA), told a media briefing on Tuesday, as the regulator launched several other fintech initiatives.

An earlier small-scale trial explored using e-CNY digital wallets in Hong Kong.

The HKMA also said on Tuesday it would issue a paper exploring the feasibility of issuing a retail-focused CBDC, an e-HKD, within 12 months. The paper will consider potential use cases, as well as data privacy, and anti-money laundering standards among others.

The regulator had previously said it was focused on using CBDCs as a way of streamlining cross-border interbank payments.

"People are now a lot more used to digital payments, and if other central banks are exploring possible use cases for CBDCs... you have to try out to see whether you can make it successful," Eddie Yue, HKMA's chief executive, said at the same briefing.

The HKMA's trials of cross-border interbank CBDCs continue alongside the other consumer-focused projects, and earlier this year, the Chinese mainland and the UAE's central banks joined an HKMA and Bank of Thailand wholesale CBDC pilot.

(With input from Reuters)