Hong Kong e-CNY expanded pilot: A testbed for currency globalization

Editor's note: Matteo Giovannini, a special commentator for CGTN, is a finance professional at the Industrial and Commercial Bank of China in Beijing and a member of the China Task Force at the Italian Ministry of Economic Development. The article reflects the author's views, and not necessarily those of CGTN.

The digital yuan, also known as the e-CNY, is a multifaceted initiative that holds significant importance for China with far-reaching implications ranging from economy to technological landscape, from geopolitical strategy to societal infrastructure.

It represents a significant step forward in China's efforts to modernize its financial system, enhance economic sovereignty, and assert its influence in the global financial arena. Through the digital yuan, China aims to lead the way in the digital currency revolution, setting the stage for a future where digital payments and currencies play a central role in global finance.

On May 17, the Hong Kong Monetary Authority (HKMA) announced further progress in its collaboration with the People's Bank of China (PBOC) on cross-border payment trials for the digital yuan. Hong Kong residents can now use their local mobile phone numbers to set up e-CNY personal wallets and top up the wallets via the widely used Faster Payment System (FPS), in what is the world's first linkage of a faster payment system with a central bank digital currency, without having to open a Chinese mainland bank account.

The initiative, which represents the first example of China's currency project being extended beyond the mainland, marks a significant step in the country's efforts to increase the yuan's share of global payments. By integrating the digital yuan with Hong Kong's financial system, the program aims to facilitate cross-border payments and enhance the efficiency of transactions between Hong Kong and the mainland.

The increased level of collaboration between the HKMA and the PBOC on cross-border payment trials, which provides an efficient and convenient retail payment ecosystem for people in Hong Kong spending in the Chinese mainland and for mainland users traveling to Hong Kong, is significant for several reasons.

The pilot program offers an opportunity for the digital yuan to be tested in an international financial hub, potentially increasing its acceptance and use outside of the Chinese mainland. A successful trial in Hong Kong can provide a model for broader international adoption, helping China refine its technology and regulatory approach before expanding further globally.

Widespread utilization of the digital yuan in Hong Kong could also facilitate more seamless cross-border trade and financial transactions between Hong Kong and the mainland, reducing transaction costs, increasing efficiency, and encouraging more business activities between the two regions. In addition, the introduction of the digital yuan in Hong Kong promotes financial innovation and inclusion, providing residents and businesses with more payment options and encouraging the adoption of new financial technologies.

From a strategic point of view, by strengthening economic ties with the Special Administrative Region, the Chinese mainland signals its intention to closely align its financial ecosystem with that of Hong Kong. This move enhances financial integration, facilitating smoother cross-border transactions and economic activities, and aligns with broader efforts to integrate the economies of the Greater Bay Area.

The pilot program represents a golden opportunity for Hong Kong, as the first place outside the Chinese mainland that enables its residents to set up e-CNY wallets locally, to confirm its role as a super-connector between East and West. Allowing the digital yuan to be used in retail shops and online stores in Hong Kong has a positive effect on the local economy, stimulating local commerce by attracting more tourists and consumers from the Chinese mainland who prefer using digital yuan over other payment methods.

In addition, the pilot program spurs innovations in financial services as it can lead to new payment solutions and financial products that are set to enhance Hong Kong's role as a leading global financial center.

Besides, allowing the digital yuan to be used in Hong Kong is a strategic step towards making the yuan become the currency of choice in global trade, reducing the global dominance of the U.S. dollar and increasing the yuan's use in international markets. In this sense, the digital yuan provides an alternative that could mitigate risks associated with sanctions or financial restrictions.

By promoting the use of the digital yuan in a global financial hub like Hong Kong, China can boost its soft power and influence in the region, showcasing its technological advancements and leadership in digital currency innovation.

All things considered, an increased strategic alignment between the HKMA and the PBOC on cross-border payment trials is a critical step in the evolution of digital currencies that helps to educate the public about the benefits of the adoption of technological advancement. Such cooperation has the potential to enhance economic integration, promote financial innovation, and strengthen the strategic positioning of both Hong Kong and the Chinese mainland in the global financial system, thereby contributing to global financial stability and efficiency.

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