The Bank of China Hong Kong (BOCHK) has announced the commencement of a pilot project aimed at exploring the integration of smart contracts in the proposed Hong Kong central bank digital currency (CBDC).
This innovative project will assess the practicality of smart contracts within prepaid service agreements through BOCHK’s mobile application, BOC Pay. The initial phase of this study will involve selected bank employees and ten businesses from various sectors such as medical, beauty, education, and fitness, as detailed in the bank’s official statement.
As per the announcement, customers’ prepaid funds will be automatically converted into e-HKD (digital Hong Kong Dollars) within their accounts, managed by smart contracts. These smart contracts will execute transactions upon meeting predetermined conditions, enabling participants to use their e-HKD for purchases from selected merchants.
Chen Guang, Deputy General Manager of the Digital Currency Task Force at BOCHK, emphasized that this pilot program aims to minimize technical barriers and additional resource requirements for participating merchants by utilizing the existing BoC Pay and BoC Bill Merchant App.
Additionally, the pilot incorporates point-of-sale functionality, simplifying the process for merchants, who will not need to install additional software, thus potentially facilitating the wider adoption of the CBDC.
BOCHK has been actively exploring prepaid functionalities since May, in alignment with the Hong Kong Monetary Authority’s (HKMA) launch of CBDC pilots. Sixteen banks have joined these initiatives, examining use cases for full-fledged payments, offline payments, tokenized deposits, and programmable payments with retail applications.
“We aim to capitalize on HKMA’s e-HKD Pilot Programme to create a new business model for retail SMEs and build a healthy ecosystem for prepaid consumption,” stated Guang.
The BOCHK’s pilot initiative follows a recent study conducted by HSBC Hong Kong on programmable payments, involving staff and students from the HKUST Business School. In this pilot, 200 individuals will receive hypothetical eHKD to be spent on campus over five weeks.
In July, BOCHK introduced an initiative to facilitate cross-border transactions, allowing Chinese tourists visiting Hong Kong to use the digital yuan for payments.
Nevertheless, the Hong Kong Monetary Authority has clarified that the mainstream launch of e-HKD will not proceed until key industry players have acquired the necessary experience. HKMA CEO Eddie Yue has stated that financial institutions must obtain both technological and regulatory clearance to prepare for a commercial CBDC rollout.
Despite some uncertainties surrounding the future of the CBDC, the HKMA’s pilot program continues to advance, with cross-border payment capabilities standing out as a prominent use case. The HKMA has acknowledged that for the CBDC to compete effectively with existing retail payment options, it must offer cost-efficiency, speed, and heightened security.
