Hong Kong is in the pilot phase. The Hong Kong Monetary Authority has worked extensively on proof-of-concept and pilot projects over the years.

CBDC History and Development

In 2017, the Hong Kong Monetary Authority started a proof-of-concept (referred to as Project LionRock) with three banks and HongKong Interbank Clearing Limited. The project was designed to test how a wholesale CBDC could be used to handle large-value payments and payment settlements.

In 2019, the Hong Kong Monetary Authority worked with the Bank of Thailand to develop a CBDC prototype (referred to as Project Inthanin-LionRock). This prototype was built to test cross-border payments with ten banks.

In 2021, the Hong Kong Monetary Authority published a whitepaper exploring the technical considerations that might be made with respect to a retail CBDC. The whitepaper specifically focuses on the idea of a two-tier distribution model and the design considerations that follow.

In November 2022, the Hong Kong Monetary Authority started the “Rail 2 – e-HKD” or “Rail 2 Pilot” program. Applications from companies seeking to work on the pilot were accepted through January 31, 2023.

In early 2023, the Hong Kong Monetary Authority selected 16 firms—including Ripple, Visa, Mastercard, Giesecke+Devrient, and Alipay—to participate in the pilot program. The firms were able to test CBDC designs under the following categories: full-fledged payments, programmable payments, offline payments, tokenized deposits, settlement of Web3 transactions, and settlement of tokenized assets.

In October 2023, the Hong Kong Monetary Authority published a report on it’s the first phase of its pilot program. The report claims that a CBDC could help with “ programmability, tokenisation, and atomic settlement.” However, the report further notes a decision to launch a CBDC had not yet been made. And it was at this time that the Hong Kong Monetary Authority decided to create a CBDC Expert Group “to support Hong Kong’s future exploration of key policy and technical issues surrounding CBDCs.”

In 2024, the Hong Kong Monetary Authority announced it was entering the second phase of its retail CBDC pilot and launching a new wholesale CBDC project (referred to as Project Ensemble). As far as the second phase of the CBDC pilot goes, the next phase will further explore use cases for a retail CBDC. Whereas Project Ensemble is designed to “initially focus on tokenised deposits” with the wholesale CBDC acting as the foundation. If the wholesale CBDC “garners sufficient interest from the industry, the [Hong Kong Monetary Authority] will conduct a ‘live’ issuance of the [wholesale CBDC] at the appropriate time.”

The Hong Kong Monetary Authority has also been working with the Bank for International Settlements on a wholesale CBDC pilot (referred to as Project mBridge). As the Bank for International Settlements describes it, Project mBridge “seeks to solve some of the key inefficiencies of cross-border payments, such as high costs, low speed and transparency, and operational complexities. At the same time, the project aims to safeguard currency sovereignty and monetary and financial stability for each participating jurisdiction, guided by the principles of ‘do no harm’, compliance and interoperability.”

Hong Kong Monetary Authority chief executive Eddie Yue delivered a speech on CBDCs in April 2024. He said, “Any digital money should enable fast, convenient, seamless, and around-the-clock transactions between consumers and businesses.” Although this description sounds like it is referring to the digital money people already use with cards and apps, he later said, “As we are transitioning to a digital economy where most transactions are conducted online, there may be a case for the HKMA to provide a digital form of physical cash, that is a retail CBDC, for everyday payments.” To his credit, Yue then said, “while a retail CBDC may represent a more advanced version of cash, it remains to be seen whether the benefits of its issuance would outweigh the risks.”

Human Rights and Civil Liberties Concerns

Hong Kong was once considered a bastion of freedom, but much has changed in the years since China regained control of the special administrative region. As it stands, the most relevant concerns regarding the issuance and use of a CBDC are the crackdowns on activists and other opposing voices.

Hong Kong authorities, as reported by Amnesty International, cracked down heavily against pro-democracy activists, journalists, and human rights defenders under the 2020 National Security Law. In fact, the Chinese government has used the financial system as a means for control in targeting protestors so much that it was reported in 2019 that Hong Kong protestors were afraid to use metro cards out of fear their involvement in the protests might be identified. Unfortunately, a CBDC could be used as another tool in this crackdown. Across the world, governments have often turned to freezing and seizing the money of activists, political rivals, and protestors to undermine the opposition. A CBDC would make such initiatives easier by allowing governments to take direct control of each citizen’s finances.

For additional information on concerns regarding violations of human rights and civil liberties, see the following reports by Amnesty International, Financial Tyranny Index, Freedom House, Human Rights Watch, Privacy International, and the U.S. Department of State. For additional information on concerns regarding the risks of CBDCs, see the following webpage and report by the Cato Institute: The Risks of CBDCs and Central Bank Digital Currency: Assessing the Risks and Dispelling the Myths.

For additional information regarding metrics, the methodology page explains each of the data points and provides their respective sources.