In this Oct 24, 2008 photo, a pedestrian walks past the building housing Hong Kong Monetary Authority's office in Hong Kong. (TED ALJIBE / AFP)

International trade settlement could be put to the test this year under the “multiple central bank digital currency bridge”, a project of the Hong Kong Monetary Authority, Legislative Council members were told on Wednesday.

The HKMA’s “multiple CBDC bridge” project aims to develop a system that could support the entire process of international trade settlements, Christopher Hui Ching-yu, secretary for financial services and the treasury, told LegCo

The project aims to develop a system that could support the entire process of international trade settlements, Christopher Hui Ching-yu, secretary for financial services and the treasury, told LegCo.

At this stage, paper trade documents are mostly used in international trade settlements.

Central bank digital currencies are a new payment “format” that can be used by financial institutions. They have been found to be capable of speeding up the process of cross-border payments, reducing the time needed from several days to close to real-time.

The HKMA’s “multiple CBDC bridge” project involves the Digital Currency Institute of the People’s Bank of China, the Bank of Thailand, and the Central Bank of the United Arab Emirates, as well as the Bank for International Settlements Innovation Hub Hong Kong Centre.

READ MORE: HKMA to monitor banks' operating environment in wake of drop in profits

International trade transactions between these participants exceeded $730 billion in 2019, World Bank data show.

In testing international trade settlement, those involved were 19 financial institutions, such as UBS, HSBC and Goldman Sachs; two banking associations; and Hong Kong Exchanges and Clearing.

The Bank of China (Hong Kong), in its case study on the interoperability with digital trade finance platforms, has explored the use of two blockchain-based trade finance platforms — the cross-bank eTradeConnect in Hong Kong, and the People’s Bank of China Trade Finance Platform of Bank of China’s Institute of Digital Currency. HKEX studied forex transactions, while UBS has explored the settlement of tokenized dual currency instruments, such as dual-currency Hong Kong-dollar-denominated notes that are digitized and settled by way of digital renminbi or digital Hong Kong dollars (e-HKD).

On Wednesday, Hui told LegCo that the HKMA and participating central banks had identified 15 potential business use cases, and selected international trade settlement for testing on a trial platform. The test has proved that a “multiple CBDC bridge” can improve the efficiency of cross-border payments “while ensuring appropriate mechanisms are in place for complying with the relevant policy, regulatory, and privacy protection requirements”.

ALSO READ: Survey: HK SMEs' business confidence remains stable

HKMA is also examining the feasibility of issuing retail e-HKD, covering technical and policy considerations, Hui said.

A technical white paper was published in October discussing the proposed technical design.

An initial view on e-HKD is expected in the middle of this year, Hui said.

“The study of e-HKD is done based on the existing currency board mechanism, hence the study would have no impact on the monetary system of Hong Kong,’’ he said.