Hong Kong Sets Stage For E-CNY Use, To Launch Pilot ‘Soon After Spring Festival’

Hong Kong will officially launch a trial system for the usage of the virtual yuan, or e-CNY, in the city for food and fun, giving the unique administrative area the status of the first offshore metropolis to do so outside of mainland China.

In a regular monthly financial affairs plenary session of the Legislative Council, Eddie Yue Wai-man, chief executive officer of the Hong Kong Monetary Authority (HKMA), the city's de facto central bank, said: "The experimental phase of e-CNY will be an important step for Hong Kong to enhance its position as a global offshore yuan commercial hub."

He did not provide a specific debut schedule, instead saying that it would start shortly after the Spring Festival. This season finishes on the 15th day of the Lunar New Year, which occurs on February 15, according to Chinese traditions.

Since March of 2021, the HKMA has been evaluating the usage of the virtual yuan, with certain bank employees utilizing Hong Kong's Faster Payment System (FPS) payment \infrastructure to deposit Hong Kong dollars into e-CNY wallets. The HKMA and the People's Bank of China (PBOC) will pick specific mainland guests and other persons to use e-CNY at select bars and restaurants in Hong Kong as part of the experimental phase. At the same time, Hong Kong citizens living in mainland Chinese Greater Bay Area urban centers will also be able to use virtual money instead of two different e-wallets earlier.

To utilize the electronic yuan, users must first install e-CNY wallets, which will connect to Hong Kong's FPS to top up and conduct transactions. At the end of 2021, the FPS had 9.6 million authorized users, and the average rate of new operations increased by 90% year on year to 670,000 last year. Legislators applauded the experiment, which Yue claimed will first concentrate on retail purchases before expanding to include wholesale operations later.

The virtual yuan is now accepted in Shenzhen, Suzhou, Xiongan, Chengdu, Shanghai, Hainan, Changsha, Xian, Qingdao, and Dalian and Beijing and Winter Olympics locations outside the capital.

According to Zou Lan, the PBOC's head of financial markets, e-CNY users quadrupled to 261 million in December from 140 million only two months earlier. The spike occurred before the PBOC's public release of its official e-CNY wallet app in January.

Allan Zeman, the founder of Lan Kwai Fong Holdings and its eponymous nightlife zone in Hong Kong's Central, has shown interest in having his stores and cafes participate in the e-CNY test plan.

"Cafes and other businesses in Lan Kwai Fong will want to participate in the trials since e-CNY represents the future of transactions. In mainland China, nobody carries cash. To reach a wider audience, Hong Kong would have to speed up and create virtual transaction methods," Zeman said.

The experiment will take place during a period when few mainland visitors are traveling to Hong Kong due to rigorous isolation measures imposed in the aftermath of the COVID outbreak. Inbound visitor visits fell by 98% to 81,950 in the first 11 months of the year, from 3.56 million in the same time in 2020.

On the other hand, Zeman believes that starting the trials at a low time would ensure that the technology is prepared for the rush of visitors once the border with mainland China opens again.

The project has also garnered positive feedback from Hongkongers residing in mainland Chinese Greater Bay Area cities.

"I applaud the e-CNY testing since it is a realistic way to speed the incorporation of individuals residing in the Greater Bay Area," remarked Wilson Chow, partner and global TMT leader at accounting firm PwC. Chow has been a resident of Shenzhen since 2003.

"Many individuals, myself included, presently utilize two e-wallets, one in yuan and the other in Hong Kong dollars, to pay for commercial purchases made in both mainland China and Hong Kong. The implementation of a single e-CNY wallet across the Greater Bay Area would make digital money simpler," he said.

According to Chow, the e-CNY is run on a secured blockchain network overseen by the central bank, so there is no reason for users to be concerned about safety.

The Hong Kong Monetary Authority is also investigating the introduction of a virtual Hong Kong dollar known as e-HKD, and further information will be published by the middle of 2022.

Yue noted that the administration also talked with banks about assisting small and medium businesses affected severely by the COVID-19's current wave.