By
Chimamanda U. Martha
April 29th, 2024
The test focused on business-to-business settlements using banks to carry out activties like payment settlements for goods and services, payments to and from institutions and merchants.
On November 1, Visa Inc (NYSE: V) announced completing a trial program with the Hong Kong Monetary Authority (HKMA) to test a central bank digital currency (CBDC) version of the Hong Kong dollar, the e-HKD. The project was also done in collaboration with HSBC Holdings plc and Hang Seng Bank, and it is the first time in the world that such a test was conducted for bank transactions using tokenized deposits. The core idea was converting standard fiat currency bank deposits into digital tokens on a blockchain ledger. Each e-HKD token represents one Hong Kong dollar, backed by the bank’s reserves.
The test focused on business-to-business settlements using banks to carry out activities like payment settlements for goods and services, payments to and from institutions and merchants, to check for how safe it is, how it can be controlled, the network’s resilience, and how transparent the transactions can be.
A major finding from the pilot was the speedy settlement of interbank e-HKD transfers. The tokens were simultaneously deducted from the sending bank and credited to the receiving bank. This allowed near-instantaneous settlement compared to existing systems. The Visa payment network utilized for the e-HKD pilot provided uninterrupted 24/7 financial transactions. This ensures availability at all times, unlike traditional systems that have limitations on weekends and holidays.
Privacy was maintained through encryption that kept identities and account balances private while still enabling oversight of the ledger. With the successful Phase 1 pilot complete, the HKMA plans to proceed to Phase 2 and continue expanding the scope of e-HKD testing and functionality. One use case will be integrating e-HKD with property purchases to automatically release payments upon sales completion.
Liang Puning, Managing Director of Visa Hong Kong and Macau, said:
“The HKMA’s pilot program provides Visa with a good opportunity to continue to leverage our strengths and work with our partners to drive payment innovation and test new forms of money movement. This time, the research fully demonstrates that Visa’s payment solutions can be widely used and enable safe money movement, benefiting more citizens, businesses, and markets.”
A Major Milestone in the Ongoing CBDC Exploration Worldwide
The e-HKD pilot program explored the potential benefits of using tokenized or digital assets, such as faster settlement times, privacy protections, and around-the-clock operation. It is part of a broader exploration of central bank digital currencies that is happening in many places around the world.
Shirley Yu, Global Senior Vice President and President of Visa Greater China, in expressing his confidence about the project and the general tokenization of money, said:
“The electronicization of money is the future development trend. We believe that digital currency has the potential to extend the value of electronic payments to benefit more people and wider areas. Visa As a leading payment network, we will continue to build and consolidate the payment ecosystem.”
Tokenizing money is expected to usher in new opportunities for the financial industry and the world at large. It will surely change how banks communicate with one another, making transactions better than the traditional methods most people have been used to. The successful completion of this testing phase would also give other central banks, and CBDC plans more clarity about the potential benefits they can get from the scheme.