Hong Kong recently became the first location outside of mainland China to allow residents and expats to open digital wallets and hold China’s CBDC e-CNY, also known as the digital yuan. This move was announced by the Hong Kong Monetary Authority (HKMA), which stated that individuals could now open e-CNY wallets using their local mobile phone numbers with four major mainland Chinese state-owned banks. The accredited banks involved in facilitating the CBDC wallet opening are the Bank of China, the Bank of Communications, the China Construction Bank, and the Industrial & Commercial Bank of China. This development marks a significant step in expanding the scope of the e-CNY pilot in Hong Kong.
Howard Lee, the Deputy Chief Executive of the HKMA, highlighted that unlike conventional digital wallets, the e-CNY wallet is fully endorsed by the People’s Bank of China. The aim of introducing the digital yuan in Hong Kong is to provide residents with a secure and convenient option for cross-border payments, particularly when traveling to the Greater Bay Area integration zone, which encompasses Hong Kong, Macao, and nine cities in Guangdong province. The Chinese central bank’s plan to expand the digital yuan to Hong Kong was initially reported in January 2024. While there are concerns among Hong Kong retailers about the potential impact of mobile payments on local consumption patterns, the e-CNY payments are currently accepted by around 300 merchants in the city, subject to certain transaction limits.
Individuals in Hong Kong can top up their e-CNY wallets through the Faster Payment System (FPS), which has been integrated with the e-CNY payment infrastructure. This integration is seen as a significant step towards promoting the internationalization of the yuan, according to senior economist Gary Ng from Natixis Hong Kong. Ng expects that more companies will adopt the system in the future, further driving the usage of the digital yuan in cross-border transactions. The People’s Bank of China reported that domestic transactions facilitated by the digital yuan reached 1.8 trillion yuan (approximately $249 billion) by the end of June 2023, with over 120 million individual e-CNY digital wallets opened nationwide, including over 29 million in Suzhou.
Despite the growth in digital yuan transactions, there is still a preference among many workers to convert their e-CNY into fiat currency due to concerns about the utility and privacy of using CBDC. This reluctance to fully embrace the digital yuan as a payment method has been noted in various reports, indicating that individuals are more comfortable with physical cash. Despite the challenges, the expansion of the e-CNY pilot in Hong Kong represents a significant milestone in the adoption of China’s digital currency in an international setting. This development is expected to have far-reaching implications for the use of the digital yuan in cross-border transactions and could pave the way for further integration of CBDCs into global financial systems in the future.
