This photo taken on April 11, 2023 shows the gate to the Hong Kong Monetary Authority in Central, Hong Kong. (CALVIN NG / CHINA DAILY)

Hong Kong Monetary Authority on Monday released the phase one report on the e-HKD pilot program, saying the digital version of the local currency has the potential to facilitate faster, more cost-efficient, and more inclusive transactions and enable new types of economic transactions, yet short of giving implementation timelines. 

The trial run under phase one, which kickstarted in May, showed that an e-HKD could add unique value to the current payment ecosystem in Hong Kong in “programmability, tokenization, and atomic settlement,” according to the HKMA.

Through this network, both consumers and merchants would be able to bypass today’s intermediaries to enjoy a swifter and more efficient settlement process as well as potentially lower transaction costs 

The result came after an exploration of e-HKD’s potential use cases in six categories, including full-fledged payments, programmable payments, offline payments, tokenized deposits, settlement of transactions for the next generation of the Internet, or Web 3.0, and settlement of tokenized assets.

READ MORE: Stress on digital assets as e-HKD date nears

Sixteen firms from the financial, payment and technology sectors, including HSBC and Alipay, have been selected to participate, conducting 14 pilots across the six categories. 

Eddie Yue Wai-man, chief executive of the HKMA, said phase one of the e-HKD pilot program has examined many innovative use cases of an e-HKD and has provided valuable insight on how an e-HKD can potentially add tangible value to businesses and consumers.

HSBC’s case provided a handy example. The lender examined in its pilot use of a private blockchain network to transact hypothetical e-HKD between consumers and merchants, with the objective of testing instant, final settlement at a transaction level. This can remove the need for frequent liquidity management payments for settlement purposes. 

Through this network, both consumers and merchants would be able to bypass today’s intermediaries to enjoy a swifter and more efficient settlement process as well as potentially lower transaction costs, according to the phase one report. 

“These pilots have also raised a number of areas for future study. We thank all participating firms for their strong interest in the program, and look forward to continuing our close partnership with the industry in our exploration of central bank digital currencies,” Yue added. 

However, the HKMA is still weighing up whether and when to introduce an e-HKD. 

The authority recognized that these pilots are conducted on “a small scale under a controlled environment.” Further investigation and evaluation are required to determine if these benefits can be realized at a larger scale in real-life applications.

The next phase of the program will seek to explore new use cases for an e-HKD and delve deeper into select pilots from phase one, HKMA said in a statement. 

As one of the participants of the first phase, China Construction Bank (Asia) said on Monday in a statement that it hopes to address the pain points of the prepaid consumption model that have persisted through the pilot program of e-HKD. 

“On one hand, it can protect the legitimate rights and interests of consumers, and on the other hand, it can contribute to the continuous operation of trustworthy merchants,” the lender said.

READ MORE: HKMA kicks off e-HKD pilot study 

In addition to the required improvements in the user experience such as ease of payment and ease of setup, HSBC said potential use cases of programmability on distributed ledger technology should be further explored and tested, running more field experiments on other advanced programmability features, such as cash on delivery and identity-based discounts and redistribution.

It also recommended the authority develop sandbox infrastructure based on production design to perform a viability assessment for digital currency issuance and cross-bank management. 

Other directions for future research include use cases in testing how digital currency can support further developments in financial instruments, including digital assets, and scaling of the pilot scope to cater to a greater volume of customers and merchants, HSBC said.