The Hong Kong Monetary Authority (HKMA) has this week revealed the members of a group to help steer its explorations in the increasingly busy field of tokenised finance.
Described as its ‘Architecture Community’, the group’s task is to ‘shape standards and provide suggestions to support the development of Hong Kong’s tokenisation market’.
Its formation is part of the authority’s major ‘Project Ensemble’ initiative, which is aiming to create a ‘new financial market infrastructure that bridges the gap between tokenised real-world assets and money in transactions’.
Alongside the HKMA itself, the group’s members are: the Securities & Futures Commission, the Bank for International Settlements (BIS) Innovation Hub’s Hong Kong centre, its 12-member Central Bank Digital Currency (CBDC) Expert Group (set up in October 2023 to foster collaboration and knowledge exchange with academia) and seven members from the private sector.
The seven companies, which include four banks, are: Bank of China (Hong Kong), Hang Seng Bank, HSBC, Standard Chartered Hong Kong, HashKey Group, Ant Digital Technologies and Microsoft Hong Kong.
The Architecture Community’s composition is ‘based on a range of careful considerations, including the members’ expertise in contributing to the development of the tokenisation market in Hong Kong, experience and competency in relevant fields and innovative capability’, according to the HKMA’s announcement (7 May) of its ‘initial’ membership. The authority states that it will review group’s size and composition ‘as and when deemed appropriate’.
RELATED ARTICLE HK to launch wholesale central bank digital currency sandbox in tokenisation push – our article (8 March 2024) on the launch of ‘Project Ensemble’
Tokenisation use-cases
Project Ensemble is aiming to explore innovative financial market infrastructure to facilitate ‘seamless’ interbank settlement of tokenised money through wholesale CBDC (often abbreviated to wCBDC, wholesale CBDC is the lower-profile sibling of retail CBDC, which is for general population use).
The project is initially focusing on commercial bank-issued tokenised deposits. With wholesale CBDC as the foundation, tokenised deposits can be used for tokenised asset transactions, ‘unlocking new opportunities for optimisation and innovation in the tokenisation era’, the HKMA stated two months ago, adding that activity would build on experimentation with tokenised deposit use-cases that it conducted alongside HSBC, Hang Seng Bank and Ant Group in 2023.
The Architecture Community is aiming to develop a set of industry standards to support interoperability among wholesale CBDC, tokenised money and tokenised asset, this week’s announcement states. It will make recommendations on specific topics, initially focusing on setting up a mechanism to support ‘seamless’ interbank settlement of tokenised deposit through wCBDC for tokenised asset transactions.
The HKMA is planning to create what it described a couple of months ago as a ‘wholesale central bank digital currency (CBDC) sandbox’ as part of the initiative. Its announcement of the make-up of the Architecture Community states that it is targeting a ‘mid-2024’ launch date for the sandbox, with the Architecture Community helping with its design and implementation.
The Project Ensemble announcement stated that the sandbox would be used to ‘further research and test’ tokenisation use-cases including settlement of tokenised real-world assets, for example green bonds, carbon credits, aircraft financing, electric vehicle charging stations, electronic bills of lading and treasury management.
SANDBOXES: EXPLAINED Sandboxes are (virtual) test-spaces for experimentation with new technology. A CBDC sandbox used by SWIFT (Society for Worldwide Interbank Financial Telecommunication) to test an experimental ‘interlinking’ solution for connecting CBDCs is one example of a CBDC-specific sandbox.
Sandbox’s international ambition
The HKMA is planning to invite other ‘relevant international stakeholders’, including other central banks, to join future experiments and exploration in the sandbox.
‘If the wCBDC sandbox garners sufficient interest from the industry, the HKMA will conduct a “live” issuance of the wCBDC at the appropriate time,’ the HKMA stated in March.
HKMA chief executive Eddie Yue said in March that the authority “welcome global talents and industry players to come to Hong Kong and be part of this very exciting tokenisation journey.”
The HKMA has also been experimenting in the field of retail CBDC (working towards a potential e-Hong Kong dollar – e-HKD). It engaged 16 firms to run retail CBDC pilots 12 months ago.
The authority has also been involved in numerous CBDC and digital finance projects alongside the BIS Innovation Hub. One example is a relatively long-running international CBDC initiative ‘mBridge’. Now in its third stage, this is focused on the development of a ‘multi-CBDC’ common platform for wholesale cross-border payments.
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HKMA-Shenzhen ‘data validation platform’
In a separate announcement this week (6 May), the HKMA announced – alongside state authorities in the Chinese mainland city of Shenzhen – the pilot launch of a ‘Shenzhen-Hong Kong cross-boundary data validation platform’.
The platform uses ‘blockchain technology and data coding (i.e. hash values) for document verification without involving any cross-boundary transfer or storage of the original documents’, according to the announcement.
The HKMA ‘has been working closely with Mainland authorities in facilitating the development of fintech innovation and cross-boundary data flow in both Guangdong [the province in which Shenzhen is located] and Hong Kong’, the HKMA states.
‘All stakeholders are supportive of fintech adoption by financial institutions to promote cross-boundary data usage in an orderly and secure manner and in compliance with relevant regulatory requirements,’ it adds.
The platform is operated by China (Qianhai) Internet Exchange, Shenzhen Smart City and the Hong Kong Science and Technology Parks Corporation in Shenzhen and Hong Kong respectively, with Shenzhen-headquartered digital bank WeBank providing research and technical support.