Hong Kong Tests Use Of Faster Payments System In CBDC Applications

September 15, 2022
Residents of Hong Kong may soon be able to top up their e-CNY wallets and make cross-border e-CNY payments using the country’s Faster Payments System.

Residents of Hong Kong may soon be able to top up their e-CNY wallets and make cross-border e-CNY payments using the country’s Faster Payments System (FPS).

The central banks of Hong Kong and China have said they are carrying out “technical tests” on the use of Hong Kong’s FPS to facilitate cross-border e-CNY payments.

According to Howard Lee, deputy chief executive at the Hong Kong Monetary Authority (HKMA), Hong Kong is the first jurisdiction outside mainland China to conduct such tests using China’s CBDC.

“The application of the FPS in Hong Kong has become increasingly mature,” said Lee.

“Given the round-the-clock and instant settlement nature of the FPS, it has the potential of delivering even more benefits in the cross-border payment context.”

FPS is an instant payments platform that allows registered users to transfer money between different bank accounts with the use of a simple identifier, such as a phone number.

For the time being, the testing is focused on promoting “interconnectivity” among e-CNY users in the Greater Bay Area, an area of more than 86m people and a GDP of $1.7trn.

The Greater Bay Area comprises the two Special Administrative Regions of Hong Kong and Macau, alongside the nine municipalities that make up the mainland province of Guangdong.

Guangdong is home to two of the world’s five largest ports by volume — Shenzhen and Guangzhou — and is also home to Chinese technology titans Tencent, Huawei and ZTE.

According to Lee, technical testing of cross-border e-CNY payments has now entered its “second phase”, which involves the use of FPS to top up the e-CNY wallet.

“Both the scope and the scale of testing have been expanded in this phase,” said Lee.

“The number of participating banks has increased from one to four, with their bank staff and merchants invited to take part.”

Based on “good progress so far”, Lee said that in future more e-CNY operating institutions and local banks will be invited to participate in testing.

Ultimately, he said, both central banks aim to facilitate the use of e-CNY via FPS by Hong Kong residents when working in or visiting the Chinese mainland.

Lee’s comments were echoed by Zhou Xiaochuan, former governor of the People's Bank of China (PBOC), who spoke about cross-border payments at this month’s China Digital Finance Forum in Beijing.

“It is clear that retail payments are an important basis for ensuring successful international transactions,” he said, as quoted by Chinese state news outlet Yicai Global.

“Because if any of the two countries involved does not have efficient and secure digital currency settlement arrangements, it is difficult to achieve cross-border connectivity.”

e-CNY settles in Hong Kong following mainland growth

The HKMA launched its first e-CNY pilot study earlier this year, shortly after Chinese New Year.

Under the pilot, the HKMA and PBOC allowed certain mainland visitors to use e-CNY at selected shops and restaurants in Hong Kong.

Meanwhile, Hong Kong citizens who live in mainland Greater Bay Area cities could use the same e-CNY wallet that is used by mainland Chinese, rather than one for each jurisdiction.

In Q1 this year, as reported by VIXIO, the PBOC said that 261m e-CNY wallets had been opened and had already transacted more than $13.75bn.

This was more than double the number of wallet holders reported in October 2021, and follows an expansion from limited beta release to a full release across all app stores in 23 cities.

During its first week after the launch in January, the e-CNY app was the most downloaded app on both the iOS and Xiaomi app stores, according to a report from SCMP.

In addition to the app store launch, the e-CNY wallet benefited from a high-profile promotional campaign during the Winter Olympic Games in Beijing.

During the Games, e-CNY was the only alternative to Visa at Olympic venues, and was open to both Chinese nationals and foreign users.

In February, Mu Changchun, director-general of the PBOC’s Digital Currency Initiative, said that a “couple of million renminbi” worth of e-CNY transactions took place every day during the Olympics.

The e-CNY could already be used on mobile payment apps such as Alipay and WeChat Pay, but the purpose-built e-CNY wallet app has been able to entice new users by offering special discounts and promotions.

For example, as reported by VIXIO, the city of Ningbo is currently running a “red envelope” promotion that allows subway users to travel for as little as one penny.

In China, family and friends use red envelopes to gift each other money on special occasions such as Chinese New Year, weddings and graduations. They are also used by businesses to offer surprise giveaways to customers.

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