e-HKD, tokenised deposits and stablecoins adoption may empower Hong Kong’s future economic development

HONG KONG — The adoption of new mediums of exchange, including retail Central Bank Digital Currency (CBDC), tokenised deposits and stablecoins, could potentially add an additional HKD160 billion of GDP for Hong Kong by 2032, according to a whitepaper released today. The whitepaper highlights some of the potential benefits for using retail CBDC in Hong Kong (i.e., e-HKD) and identifies requirements to help fully realise them.

The whitepaper “Reimagining a Future Empowered by e-HKD, Tokenised Deposits and Stablecoins”, co-developed by DLA Piper, Boston Consulting Group (BCG), HKT Payment Limited, paywith.glass, Venture Smart Financial Holdings Limited (VSFG) and ZA Bank, with inputs from the Hong Kong Monetary Authority (HKMA), highlights that emerging forms of medium of exchange may add value to the Hong Kong economy, potentially generating an additional 0.5% in GDP growth per year for the next 10 years.

Such growth is underpinned by multiple factors such as unlocking liquidity through tokenisation. At present, the size of assets potentially available for tokenisation in Hong Kong is estimated at around HKD36 trillion, the majority of which are in residential property, at HKD19.9 trillion. The ratio of financed home property to property value stands at 9%, which is lower than other markets like the UK and the US, suggesting that there is still untapped liquidity locked within assets.

As part of assessing the potential features and benefits of the e-HKD, three of the co-authors of the whitepaper (BCG, HKT Payment Limited and ZA Bank) took part in the HKMA’s inaugural e-HKD Pilot Programme¹. This use case highlighted three potential benefits for users:

• More competitive financing rates: When money usage is enforceable across platforms (and even after refund), lenders have a new function to better manage credit risk, and thus potentially offer preferential financing rates for different loan usage.
• Improved flexibility and access to financing: Asset tokenisation leads to reduced operational costs and facilitates improved flexibility for smaller loan amounts for secured lending. Theoretically, any other real-world assets in tokenised forms can also be used as collateral.
• Faster loan disbursement process: Using smart contracts, the loan amount can be disbursed to users automatically once pre-defined conditions for loan approval are met (e.g., users complete pledging certain tokens to the bank within a specified timeframe).

To fully realise the benefits of an e-HKD, three key requirements were identified in the report.

• Creating new value for users: Based on the consumer survey² conducted by some of the co-authors, more than 50% of survey respondents found use cases that featured programmability (e.g., ring-fenced usage loans, conditional payments) attractive if they create financial benefits.
• High level of security and privacy protection: Hong Kong consumers are concerned about the potential risks of e-HKD adoption, with around 70% of survey respondents citing cybersecurity and data privacy as key concerns.
• Building a clear legal and regulatory framework: Various legal and regulatory issues may arise from the use of e-HKD, such as the legal tender status of e-HKD and how the legal right of a real-world asset can be “linked” to a cryptographic token. Addressing these issues could help accelerate the acceptance of e-HKD by both businesses and consumers if introduced in the future.

The full version of the whitepaper is available here.

¹ The e-HKD Pilot Programme use case was co-led by Boston Consulting Group (BCG), HKT Payment Limited and ZA Bank with strategic support from paywith.glass and Venture Smart Financial Holdings Limited (VSFG) and legal advisory support from DLA Piper. The pilot use case “tokenised property-backed secured lending with ring-fenced usage” involves tokenising a property belonging to the user and using the resulting token(s) to apply for a ring-fenced secured loan. Leveraging its programmability feature, the loan is then disbursed through hypothetical e-HKD wallet as payment to merchants in designated fields.
² The consumer survey conducted in August 2023 received responses from a total of 1,840 Hong Kong consumers across different age groups, educational backgrounds and occupations.