HONG KONG, Feb. 5 (Xinhua) -- Hong Kong can take advantage of the central bank digital currency (CBDC) program to improve efficiency of cross-border payments under the Belt and Road (B&R), according to officials of the local monetary authority.
The Hong Kong Monetary Authority (HKMA) has recently announced outcomes of a joint CBDC research project with the Bank of Thailand (BOT), Thailand's central bank.
This project aims to promote the application of CBDC in the cross-border payment field, allowing participating banks in Hong Kong and Thailand to conduct funds transfers and foreign exchange transactions on a peer-to-peer basis, according to the HKMA.
Thailand is not only one of the B&R countries, but also one of the top 10 trading partners of Hong Kong, an important commercial hub for the B&R. So the outcomes of the joint research project can benefit the B&R cross-border payments.
The model is designed to be scalable and can be further extended to other jurisdictions or markets, said Colin Pou, executive director of the HKMA.
At present, the cross-border fund transfers have been mainly handled through the local agent banks on both sides of the transaction as intermediaries. But it has some problems. For example, remittances are handled through multiple intermediaries and exchange rate according to a single price provided by the agent bank increases the cost. The operating procedure is complex and slow, and the payment process is lack of transparency.
The monetary authorities of Hong Kong and Thailand initiated the CBDC research project named Project Inthanon-LionRock to study the application of CBDC in cross-border payment field in 2019.
Now a THB-HKD cross-border corridor network prototype based the distributed ledger technology has been developed. The participating banks in Hong Kong and Thailand can conduct fund transfers and foreign exchange transactions on a peer-to-peer basis, which helps reduce settlement layers. Leveraging on smart contracts, the cross-border funds transfer process is also enhanced to a real-time and atomic payment-versus-payment manner, according to the HKMA.
"Our joint research project with the BOT marks an important first step to solve the pain points of low efficiency and high costs in traditional cross-border payments. With the use of blockchain technology, the innovative and unique solution not only addresses different technical issues in practical applications but also offers good references to the central banking community on the use of CBDC," said Edmond Lau, senior executive director of the HKMA.
"Hong Kong and Thailand can gain further economic opportunities and connectivity," said Veerathai Santiprabhob, governor of the BOT.
It is reported that the two monetary authorities agreed to proceed with further joint research work in relevant areas, including exploring business cases and connections to other platforms, involving participation of banks and other relevant parties in cross-border fund transfer trials. (Contributed by Zhang Huan, edited by Hu Pingchao, [email protected])