BOCHK’s Smart Contract Pilot for Hong Kong’s CBDC

The Bank of China Hong Kong (BOCHK) has announced the launch of a pilot project to investigate the use of smart contracts in the proposed central bank digital currency (CBDC) for Hong Kong.

The bank will investigate the use of smart contracts in prepaid service contracts via its mobile application, BOC Pay.

According to the study’s official disclosure, the initial participants will be selected bank employees and ten merchants from the medical, beauty, education, and fitness industries.

According to the statement, prepaid funds will be automatically converted to eHKD in accounts managed by smart contracts.

After meeting certain predetermined conditions, the smart contract executes, allowing participants to pay for goods and services with select merchants.

Chen Guang, deputy general manager of the Digital Currency Task Force at BOCHK, stated, “This hypothetical e-HKD pilot is being conducted through BOCHK’s existing BoC Pay and BoC Bill Merchant App, effectively reducing the technical barriers and additional resources required for merchants to participate in this pilot of prepaid consumption.”

In addition to incorporating smart contracts with the e-HKD, the pilot includes point-of-sale functionality in the offering. The integration eliminates the need for merchants to install additional software, which analysts say could increase CBDC adoption.

Since May, when the Hong Kong Monetary Authority (HKMA) formally announced the launch of CBDC pilots, BOCHK has been experimenting with prepaid functionality.

Sixteen banks were brought on board to investigate the use cases of full-fledged payments, offline payments, tokenized deposits, and programmable payments with retail applications.

Guang stated, “We intend to leverage the HKMA’s e-HKD Pilot Programme to develop a new business model for retail SMEs and a robust ecosystem for prepaid consumption.”

The BOCHK pilot follows a recent HSBC Hong Kong study on programmable payments involving HKUST Business School faculty and students. Two hundred individuals will receive eHKD to spend on campus within five weeks as part of the pilot program.

BOCHK announced an initiative to introduce cross-border functionalities in July, allowing Chinese tourists to Hong Kong to use the digital yuan to pay for goods and services.

The Hong Kong Monetary Authority (HKMA) has stated that it will not launch its eHKD until crucial industry players have obtained the required experience.

Eddie Yue, the chief executive officer of the HKMA, said that financial institutions must obtain technological and regulatory clearance to prepare for a commercial CBDC rollout.

Despite the uncertainty surrounding the future of the CBDC, the HKMA’s pilot continues to advance, with cross-border payment capabilities representing an obvious use case.

Currently, the HKMA believes that the CBDC may not be able to compete with existing retail payment methods unless it becomes cheaper, faster, and more secure.