HKMA to join European test of cross-border payments on tokenised assets

The Hong Kong Monetary Authority (HKMA) has signed an agreement with its counterpart in France to become the first non-European central bank to join a system test in Europe on cross-border money transfers and settlement of tokenised-asset trades.

The Banque de France (BDF), France's central bank, and the HKMA said on Thursday that they had signed an agreement to work together on development of wholesale central bank digital currency (CBDC).

From July to November, HKMA will participate in the second stage of exploratory work in a test environment where the Eurosystem - the European Central Bank and the national central banks of the countries using the Euro - are experimenting with cross-border money transfers and the settlement of trades in different types of tokenised assets.

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"This marks an important milestone as HKMA will be the only major central banking institution outside the Eurosystem participating in the initiative," Colin Pou Hak-wan, executive director of HKMA, said on Thursday.

The collaboration came about because both parties are working on wholesale CBDC projects, Pou said. HKMA in March announced a CBDC pilot project called Project Ensemble, while BDF has a similar project called DL3S.

"As we have set the clear objective to improve cross-border payments, we have the opportunity, brought by the Eurosystem exploratory work, to collaborate with the HKMA on different use cases for payment versus payment between the tokenised form of the Hong Kong dollar and the Euro," Denis Beau, first deputy governor of the BDF, said in a statement issued by the HKMA.

"HKMA's recent announcement of the launch of Project Ensemble was very timely to initiate this cooperation. We look forward to further testing our DL3S platform in this context and hope that together we can facilitate the financial inclusion expected from enhanced cross-border payments."

Howard Lee, deputy CEO of HKMA, met Beau in Paris this week to further discuss the work.

"It is evident that there is a huge potential for collaboration between France and Hong Kong in various areas," Lee said in the HKMA statement. "Particularly in the fintech sector, both the BDF and the HKMA have well proven themselves as pioneers in the field of CBDC."

The two central banks will explore different cross-border payment solutions, promote financial market connectivity, and push forward the development of the global tokenisation market, Lee said.

France is also among the 26 observing members of project mBridge, a multi-country CBDC project involving mainland China, Hong Kong, Thailand, and the United Arab Emirates as founding members. Saudi Arabia joined the project earlier this month as a full member.

Howard Lee (left), deputy CEO of the Hong Kong Monetary Authority, meets Denis Beau, first deputy governor of the Banque de France, in Paris. Photo: HKMA alt=Howard Lee (left), deputy CEO of the Hong Kong Monetary Authority, meets Denis Beau, first deputy governor of the Banque de France, in Paris. Photo: HKMA>

Started in 2021, mBridge allows the central banks and the Bank for International Settlements Innovation Hub to use digital currencies built on distributed ledger technology to enable instant cross-border payments and settlement.

Pou said the cooperation with the BDF and the Eurosystem tests are separate from the mBridge project, but he would not rule out opportunities for different platforms to collaborate in the future.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

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