Hong Kong recently became the first region outside mainland China to allow users to open digital wallets and hold China’s CBDC e-CNY, also known as the digital yuan. This move was announced by the Hong Kong Monetary Authority (HKMA), the city’s central bank, allowing permanent residents and foreign nationals living in Hong Kong to open e-CNY wallets using their local mobile phone numbers with four major mainland Chinese state-owned banks. The accredited banks licensed to facilitate the CBDC wallet opening are the Bank of China, the Bank of Communications, the China Construction Bank, and the Industrial & Commercial Bank of China.
The HKMA and the People’s Bank of China have expanded the scope of the e-CNY pilot in Hong Kong, aiming to provide Hong Kong residents with a safe and convenient option for cross-border payments when traveling to the Greater Bay Area integration zone, which includes Hong Kong, Macao, and nine cities in Guangdong province. The digital yuan is seen as a means to foster cross-border payments and encourage economic integration between these regions. The Chinese central bank’s plan to expand the digital yuan to Hong Kong was first reported in January 2024, and now residents of the city can take advantage of this digital payment option for their transactions.
Hong Kong’s retailers are concerned about the increasing use of mobile payments in mainland cities like Shenzhen, where shopping and dining are more prevalent, potentially causing a shift in consumption patterns away from the city. Currently, around 300 merchants in Hong Kong accept e-CNY payments, subject to certain limits such as individual wallet balance caps, transaction limits, and annual spending restrictions. Despite these restrictions, HK residents can top up their wallets via Hong Kong’s Faster Payment System (FPS), which has been integrated with the e-CNY payment infrastructure.
The HKMA’s Deputy Chief Executive, Howard Lee, emphasized that the e-CNY wallet has the endorsement of the People’s Bank of China, distinguishing it from conventional digital wallets. He highlighted the key benefits for Hong Kong residents, including the ability to open e-CNY wallets with their local mobile numbers and use the digital currency for retail payments in mainland cities participating in the pilot program. This development is seen as a significant move towards promoting the internationalization of the yuan, with senior economist Gary Ng describing it as a big step compared to previous initiatives. He expects more companies to adopt the system in the future, contributing to the growth of digital yuan transactions.
Despite the significant increase in domestic transactions facilitated by the digital yuan in mainland China, reaching 1.8 trillion yuan by the end of June 2023, there is still a preference for physical cash among many workers who actively convert their e-CNY into fiat currency. This behavior indicates a perceived lack of utility and privacy concerns associated with using CBDCs, as reported by CryptoNews. The growth in individual e-CNY digital wallets nationwide and the number of digital yuan wallets opened in specific cities like Suzhou suggest the potential for further adoption and usage, but challenges related to consumer preferences and behavior remain to be addressed in order to achieve broader acceptance and utilization of the digital currency.
