As Hong Kong readies for use of digital yuan, e-HKD, retail payments in the city set for a churn
(LI MIN / CHINA DAILY)
With the e-CNY and the e-HKD set to roll out soon for retail payments, Hong Kong is on course for a digital-token boom that would secure the special administrative region’s leading position in the world’s trial platforms for digital fiat currencies.
The HKSAR would also be the first jurisdiction worldwide to use two kinds of central bank-backed digital currencies, thanks to the innovative framework of “one country, two systems”.
It comes with the utopian fantasy of accelerating Hong Kong’s process of going cashless. But a host of questions remain: Would the e-CNY’s circulation become massive and extensive in every aspect of retail payments in the city because of its fast and low-cost advantages? Would the token become a nightmare for those still stuck with traditional transaction settlements, and reduce bank notes to a distant memory, driving paper money out of the market for good? How should merchants prepare themselves to ride the digital currency tide?
Financial technology pundits said they believe that digital yuan customers in Hong Kong would be mostly tourists from the Chinese mainland, along with Hong Kong people living on the mainland. Some are whimsical enough to imagine that having only e-coins in circulation is neither groundless nor baseless, given the huge number of mainland visitors to the SAR before the pandemic.
In 2018, Hong Kong recorded about 51 million mainland visitors, roughly 70 percent of the population of Thailand. With such a great number of tourists shopping and dining in the city — almost seven times the population of Hong Kong — their habit of making cashless purchases could have a powerful knock-on effect on the local retail market.
Hong Kong’s recent easing of curbs on cross-border travel has gradually brought back tourists from overseas, restoring vigor to the city’s tourism and catering businesses. Mandatory quarantine is gone and people arriving from abroad are required to undergo only three days of medical surveillance. In November, the mainland also relaxed its COVID-19 requirements for overseas visitors to five days of hotel quarantine and three days of self-monitoring.
The number of overseas arrivals in Hong Kong rocketed by more than 568 percent year-on-year to 66,037 in September, compared with a 451 percent jump for the previous month. Mainland visitors accounted for more than 75 percent of the total number of arrivals in September, partly contributing to a year-on-year increase of 0.2 percent of retail sales value, according to the city’s Census and Statistics Department.
Mainland customers are a major force in retail consumption. Their spending power has a significant impact on retailers’ revenues and ways of payments, underpinning the growth of retail sales in Hong Kong.
Digital RMB is promoted at a trade fair, held in Beijing, in September. (HAO ZHAO / XINHUA)
The central government might encourage Chinese customers to use the digital yuan, instead of cash, when traveling abroad as the traceable token can help the authorities improve the effectiveness of the nation’s monetary policy, and crack down on illicit activities, such as money laundering.
International use of the e-CNY in retailing had been tested at the Beijing 2022 Winter Olympics. Athletes, coaches and media representatives from around the world were able to use the digital currency in more than 400,000 Olympics-related scenarios, including public transportation and accommodation. China’s central bank, the People’s Bank of China, said more than $315,000 worth of digital yuan was used daily during the Beijing Winter Olympics held from Feb 4-20.
A more favorable exchange rate for the e-CNY is another big draw for mainland tourists in using the digital currency in Hong Kong. Terence Chong Tai-leung, associate professor of economics at the Chinese University of Hong Kong, predicted that when the digital yuan is used, it would be converted into Hong Kong dollars based on real-time exchange rates. That means consumers can use the same amount of renminbi, or CNY, to buy more items priced in Hong Kong dollars, compared with less favorable exchange rates offered by local retailers.
“A data system with two e-wallets of e-CNY and e-HKD will be designed. Both digital currencies could realize live exchange rates for Hong Kong retailers in transactions involving the digital yuan,” Chong said.
Anthony Tran, senior strategist of research content at Hong Kong-based Magpie Securities, gave an example of the current exchange rate between the renminbi and the Hong Kong dollar. “Some shops that accept renminbi fix the exchange rate at one-on-one. It’s the same when one tries to buy something on Amazon with their credit cards when exchange rates are less favorable.”
Mainland tech giants Ant Group’s Alipay and Tencent’s WeChat Pay function as e-wallets storing renminbi, making digital payments and tracking transactions online via an app installed on customers’ smart devices — a duopoly for mainland travelers to make digital deals. Alipay, WeChat Pay, Tap & Go and Octopus together had drawn 96,000 new brick-and-mortar stores in Hong Kong to use their digital wallets by late last year, according to US financial technology company Fidelity National Information Services.
Unlike online payment apps, the digital yuan aims to replace cash in circulation, not long-term deposits in bank accounts. Richard Turrin, Shanghai-based fintech expert and author of Cashless — China’s Digital Currency Revolution, wrote that payment platforms, such as Alipay and WeChat Pay, are designed to be “360-degree lifestyle platforms that satisfy needs for payment, as well as consumption”, while the e-CNY app is simply to bring digital yuan payment to other apps on mobile phones.
Despite speculation that the digital yuan could replace private payment platforms like Alipay and WeChat Pay, the PBOC said they will coexist. The digital yuan can be used either in its official app — the digital coin’s wallet — or in an offline physical card. Payments will be completed after using a generated QR code to scan a merchant’s point-of-sale machine.
A passenger pays his bus fare with digital RMB in Chongqing in May. (LUO LING / XINHUA)
Industry insiders said the reality is that it is a cooperative relationship among the digital yuan, Alipay and WeChat Pay rather than a competitive one. In their view, the digital yuan’s goal is not to try and vanquish private payment companies. Alipay and WeChat Pay have partnership deals in using the digital currency, having rolled out e-CNY as a payment option this year. A red e-CNY symbol button was embedded in Alipay in May, enabling users to search for and download an e-CNY app to receive and spend the currency. A similar e-CNY wallet function was installed in WeChat Pay, with which users can choose to pay with the currency after going through identity authentication in an e-CNY app.
PBOC Governor Yi Gang highlighted the use of e-CNY in the retail sector at the opening ceremony of 2022 Hong Kong Fintech Week, which was held from Oct 31 to Nov 4. He said e-CNY is mainly to meet the needs of domestic retail payments, enhance the development level of inclusive finance, and improve the efficiency of the currency and payment system.
The Hong Kong Monetary Authority — the city’s de facto central bank — said in September that the Faster Payment System, which allows instant cross-bank payments in Hong Kong dollars and Chinese yuan by simply entering the recipient’s mobile phone number or email address, is trying out a system for topping up the e-CNY wallet. Last year, the FPS recorded a daily average of 670,000 transactions in Hong Kong dollars — up 90 percent from 2020, according to an HKMA report. The FPS’ growing user base could give a boost to the e-CNY trial, experts said.
More than one-third of Hong Kong residents have said they will use cryptocurrencies or central bank digital currencies in making payments in the next five years, Fidelity National Information Services said.
As digital payments take a big leap forward in Hong Kong, and with the ubiquitous Alipay and WeChat Pay unveiling plans to promote the e-CNY, it is likely that the PBOC’s virtual coin will be universally accepted among mainland tourists and Hong Kong retailers, injecting impetus into the city’s march toward a cashless society.
However promising it may look, the digital yuan is unlikely to be widely adopted in Hong Kong anytime soon, as it will only be used by tourists and Hong Kong residents who visit the mainland regularly, said Tran from Magpie Securities. Thus, this would have minimal impact on Hong Kong’s monetary supply. “The impact would only be significant if the onshore renminbi can be freely traded in Hong Kong,” he said.
Chong, from the Chinese University of Hong Kong, agreed that renminbi’s advance to a paperless version is not a reason people should use it. “It would be more welcomed by Hong Kong residents if the e-wallet is directly linked to renminbi-dominated investments, and customers are not required to open mainland bank accounts,” he said.
“There will be a certain degree of influence on the Hong Kong dollar’s circulation only if mainland visitors spend too much digital yuan in the city. But, generally speaking, the digital yuan will not create any inflation or currency competition,” Chong said.
tianyuanzhang@chinadailyhk.com
