The Hong Kong Monetary Authority (HKMA) has confirmed that it is willing to collaborate with the People’s Bank of China (PBoC) for the trials of digital yuan in the special-administrative region.

Answering a set of questions raised by lawmaker Chan Chun-ying, the HKMA’s financial services and treasury secretary, Christopher Hui, publicized the monetary regulator’s stance towards the development of a central bank digital currency (CBDC).

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Hui detailed that the HKMA’s priority is to develop a digital currency for making cross-border payments efficient, not for domestic circulation.

“Research findings pointed out that as Hong Kong already had efficient retail payment infrastructure and services, the application of CBDC would have greater potential at the wholesale and cross-border payment level,” Hui noted.

The central bank launched Project LionRock to work in this area and has partnered with the Thai counterpart for joint studies.

Digital Currencies Can Transform Cross-Border Transactions

The Hong Kong regulator’s interest in the PBoC’s digital currency is primarily due to its capabilities to improve cross-border transactions.

“If the Digital Currency/Electronic Payment (DC/EP) being developed by the People’s Bank of China (PBoC) can be applied to cross-boundary payment, it would further promote the mutual connectivity between the Mainland (including the Guangdong-Hong Kong-Macao Greater Bay Area) and Hong Kong,” he added.

“Government and the HKMA will continue to maintain communication, and explore the possibility of collaboration with the PBoC.”

The Chinese central bank has already completed the development of its digital currency and is now testing it in several cities and provinces, all within the mainland.

As Hong Kong’s monetary system remains separate, implications of the region’s willingness to test digital yuan can be significant.

“We will also continue to explore with the industry and Mainland authorities on the enhancement and expansion of channels for a two-way flow of cross-boundary RMB funds,” Hui concluded.