China and Hong Kong are in the second phase of testing cross-border transactions using central bank digital currencies (CBDCs), Mu Changchun, director of the Digital Currency Institute of the People’s Bank of China, said Thursday, according to Shanghai Securities News.
- The two have successfully carried out the first phase of technical testing of topping up, transferring, and paying through digital yuan wallets in collaboration with Hong Kong banks and merchants, Changchun said at the Hong Kong International Financial Center Status and Prospects Seminar.
- In the second phase, they will try to link the digital currency system and the Faster Payment System (FPS), an interbank digital payment system in Hong Kong.
- In the future, when [China] mainland tourists use the digital yuan to shop in Hong Kong, the foreign currency exchange will be completed between two wallets, and local merchants will receive money in Hong Kong dollars, so there will be no currency substitution, said Changchun.
- Changchun also mentioned mBridge, a multilateral project overseen by the Bank of International Settlements to bridge CBDCs between China, Hong Kong, Thailand, and the United Arab Emirates.
- Hong Kong, being an international finance center, can help expand mBridge’s participant countries, he said.
- The digital yuan is likely to be the first CBDC rolled out by a major global power. Domestic pilots have been well under way for over a year, but are mostly focused on small retail transactions.