The Hong Kong Monetary Authority is seeking new ideas and proposals from academia and industry on the design of the digital Hong Kong dollar (e-HKD) after it released its initial research findings on technical and policy issues.

The HKMA has not yet made a decision on launching the e-HKD, a retail central bank digital currency (rCBDC), for retail or general use, amid the increasing use of digital payments in the city.

A detailed technical report was published last week on the potential architecture and design choices for the e-HKD.

The Hong Kong Monetary Authority said that its goal is to present its initial views on the design of the digital Hong Kong dollar by middle of next year

The HKMA said the report points the way for further discussions on the-HKD’s technical design and that its goal is to present its initial views by middle of next year.

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Seven areas have been identified for more discussion – privacy, interoperability, performance and scalability, cybersecurity, compliance, operational robustness and resilience, and technology-enabled functional capabilities.

Technological solutions are being sought to resolve three important design challenges – to prevent over-issuance, trace transactions while protecting privacy, and a flexible architecture to support different models of rCBDC.

While keeping an open mind, HKMA proposes a two-layer architecture for e-HKD, which covers a wholesale system for the central bank to issue and redeem CBDC (the interbank layer), and a retail system for commercial banks to distribute and circulate (the wallet layer) either the retail CBDC or e-money supported by CBDC. Members of the public who use mobile wallets will have access to the retail layer.

According to the research findings, the wholesale and retail layers should be decoupled to ensure that cyberattacks targeting the retail user system will not breach the wholesale interbank network. However, the decoupling would be a challenge for synchronizing the respective ledgers.

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It is also necessary to track down transactions to identify owners of CBDC in the wholesale layer, and also ensure accurate accounting and redemption of e-money with multiple issuers, while ensuring privacy, according to the report.

The HKMA began research on a CBDC in 2017, under ‘Project LionRock.’ Two years later, HKMA and the Bank of Thailand began ‘Project InthanonLionRock,’ to understand the potential of wholesale CBDC for cross-border payments.