Hong Kong unveils its retail CBDC with a unique design

Updated: 22 October 2022

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The Hong Kong Monetary Authority has unveiled a completed prototype of its Aurum retail central bank digital currency (CBDC). The prototype was launched on October 21 and was created in partnership with the Bank for International Settlements (BIS) Innovation Hub.

Hong Kong launches its retail CBDC with a unique design

The system for this retail CBDC has a unique structure reflecting the existing money issuance system in Hong Kong. Aurum comprises a wholesale interbanking system and a retail digital wallet.

The digital wallet in question has been developed at a local bank, and it comprises a smartphone interface. A validator system is in place to prevent the over-issuance of the currency by the bank and support user double redemption.

The intermediate retail CBDC is supported in these digital wallets, while CBDC-backed stablecoins will be used within the interbanking system. The CBDC-backed stablecoin is an asset that reflects the Hong Kong currency system, where banknotes will be issued by three financial institutions while supported by the central bank.

The Hong Kong CBDC is a direct liability of the central bank. On the other hand, the stablecoins will be the liabilities of the bank issuing the assets. The central banks will hold the assets backing these currencies.

The authors have also added that the launch of CBDC-backed stablecoins has not been done before. The authors believed that launching these assets could support the additional research needed to create privately issued stablecoins.

“Indeed, what distinguishes Aurum from private sector stablecoins is that Aurum’s stablecoin balances are reconciled versus real-time gross settlement (RTGS) balances of the issuing bank with the central bank,” the authors added.

The wholesale and retail ledgers will have a high decoupling level. According to the designers, this would increase the resilience of the system.

Under the system, retail transactions will offer some level of anonymity. In intermediary transactions, users will have to complete Know Your Customer procedures to see the identity of users.

The records of unspent transactions will be maintained to track the ownership of digital currency used in multiple transactions. The records will be used as a safety precaution in the case of bankruptcy of the commercial bank.

Hong Kong’s research into CBDCs

Hong Kong started researching about CBDCs in June last year. The research was part of the Fintech 2025 Strategy. The HKMA is seeking the implementation of both retail and wholesale CBDCs.

The authority had earlier said that the retail CBDC did not have an “imminent role” in the payments market. However, it added that the use cases for the currency could emerge. Aurum is the first project to be conducted by the BIS Innovation Hub.

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