HONG KONG, Oct. 19 (Xinhua) -- Technology is, without a doubt, reshaping the global financial system and it is necessary for Hong Kong to consider how to seize opportunities in digital currency and make full preparations in line with national policies.
China has commenced the exploration of putting digital currency/electronic payment (DC/EP) into real-life testing earlier this year. Internal closed pilot tests were conducted at locations including Shenzhen, Suzhou, Xiong'an New District, Chengdu, as well as sites for the coming Winter Olympics.
-- WHAT IS IT?
Hong Kong Financial Services Development Council（FSDC）points out, in essence, CBDC is the digital form of fiat money and, unlike other decentralized virtual currencies and cryptocurrencies, issued by a state with a legal tender status declared by the government. Notably, some 80 percent of the global central banks are engaging in some sort of work in relation to CBDCs.
Behind the strong interest and keen participation globally, CBDC is more than a mere replacement of cash to avoid physical contact amid COVID-19 pandemic, but has embedded layers of features that one could hardly have imagined years ago.
Jim Lai, board member and Policy Research Committee Convenor of FSDC thinks that China is one of the earliest countries to have embarked on the journey of developing its own CBDC - the digital Renminbi (RMB), namely DC/EP. While there is not much official information about the subject, market participants expect DC/EP to become one of the most exciting fintech developments.
Ba Shusong, managing director and chief china economist of Hong Kong Exchanges and Clearing Limited, thinks that fully backed by the credit of the People's Bank of China, DC/EP is a legal tender backed by RMB in a 1:1 ratio. As surprising as it may sound, such "digital" RMB does not necessarily require both the paying and receiving terminals to be online to carry out a payments between two DC/EP wallets.
Another breakthrough is that DC/EP would allow those who do not even have bank accounts to use it for small-amount transactions, granting financial access to the unbanked population. Given such nature, the presence of DC/EP could streamline the distribution of government financial aids to some 200 million rural and unbanked population.
Moreover, DC/EP preserves controllable anonymity while enabling transactions to be traceable, which would be useful in countering such illegal activities as money laundering. Building on the trackable series of transactions, policymakers would be able to strengthen the implementation of monetary policies and enforceability of other laws and regulations.
-- WHY IS IT IMPORTANT TO HONG KONG？
Along with the development of DC/EP, a potential matter for Hong Kong to consider and be prepared is the cases of DC/EP using in Hong Kong. DC/EP may have its implications reach to such areas as interbank payments, expansion of mutual market access and RMB internationalization.
Behind the excitement about these implications of DC/EP, it is crucial for Hong Kong Special Administrative Region (SAR) to set local regulations and other financial infrastructures such as risk management systems ready.
In this connection, FSDC has formed a working group to look into these matters and it hopes to have its findings and recommendations ready soon to generate more industry discussion.
For a long time, as an international financial center, Hong Kong has accumulated certain advantages in the legal system, talents, and openness related to the financial industry. In recent years, the government of Hong Kong SAR has repeatedly taken important measures in the field of financial innovation. In 2018, the Hong Kong SAR government clearly stated that financial technology should be one of the four key areas of innovation and technology development.
In 2019, the Hong Kong Monetary Authority and the Insurance Regulatory Authority issued the first batch of virtual bank licenses and virtual insurance licenses respectively. The Securities and Futures Commission (SFC) of Hong Kong also officially released a document entitled supervision of virtual asset trading platforms, accepting applications for virtual asset trading platform licenses. In November 2019, the Hong Kong Monetary Authority and the People's Bank of China (PBC) signed the memorandum of cooperation on trade and finance platforms to start the interconnection between the PBC trade finance platform (PBCTFP) and the eTradeConnect in Hong Kong.
Under the current trend of the development of digital economy and the competitive situation surrounding the digital economy, Hong Kong has good advantages and huge development opportunities.
-- HONGKONG GLOBAL DIGITAL FINANCIAL CENTER
Hu Zhanghong, board member of FSDC, said that Hong Kong should accelerate the formation of innovative advantages in the development of financial technology, and seize opportunities in the digital economy to actively build a global digital financial center.
In his opinion, Hong Kong should build a global digital asset trading center, an offshore digital RMB center and a global digital foreign exchange settlement center.
In November 2019, the Hong Kong SFC issued the position paper named supervision of virtual asset trading platforms, which clearly supervised the issuance and trading of securities virtual assets, marking an important step forward for Hong Kong in the field of financial technology innovation.
Hu believes that Hong Kong should speed up the promotion of the issuance and trading of Security Token Offering (STO) that are conducive to the development of the real economy on the basis of the licensing of compliant virtual asset exchanges, focusing on Hong Kong’s advantageous intellectual property rights, using block chain technology to promote the on-chain, issuance and trading of data assets, serve the development of the real economy, build a global digital asset trading center, and accelerate the formation of a competitive advantage in the global digital asset field.
As the world's largest offshore RMB center, Hong Kong has an offshore RMB capital pool of more than 600 billion yuan. Hong Kong should actively participate in the research and application exploration of the PBC’s DCEP, expand the application of the central bank's digital currency in cross-border trade financing, offshore payment and settlement, and create an offshore digital RMB center. At the same time, Hong Kong can make use of its location advantages of internationalization and radiation of the Belt and Road Initiative and promote the application of offshore digital RMB in the Belt and Road Initiative countries and regions in the future. Contributed by Li Binbin and edited by Duan Jing with Xinhua Silk Road, duanjing@xinhua.org)
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