Central Bank Digital Currency (CBDC) Developments in Asia

CBDC development has been a focus for many central banks across Asia this year, with several continuing to test what could eventually serve as an alternative to physical currency.

“It has been business as usual for central banks in Asia, which continue to invest in CBDC pilots,” said Angela Ang, senior policy advisor at TRM Labs and a former regulator at the Monetary Authority of Singapore.

Ang pointed out that Project mBridge, one of the earliest cross-border CBDC projects, reaching minimum viable product status, was a “pretty significant milestone.” The CBDC project reached MVP status in June, meaning it contains enough features to be used by early adopters.

The mBridge project is initiated by the Bank for International Settlements (BIS), the HKMA, and the central banks of China, Thailand, and the UAE to experiment with a common multi-CBDC platform for wholesale cross-border payments.

BIS noted that the MVP platform can undertake real-value transactions and is compatible with the Ethereum Virtual Machine. “This allowed it to be a testbed for add-on technology solutions, new use cases, and interoperability with other platforms,” BIS said.

“But BIS has also said mBridge is many years away from operational maturity,” Ang said. “So the reality is we are probably still years off from widespread CBDC use in the region.”

Hong Kong Expands e-HKD Pilots

In August, the Hong Kong Monetary Authority, the de facto central bank, launched a sandbox for Project Ensemble, a wholesale CBDC project, as the region moves closer to testing tokenization within the traditional financial industry.

The HKMA said the sandbox is designed to facilitate interbank settlement using experimental tokenized money. The central bank also detailed the four aspects the sandbox would initially focus on — fixed income and investment funds, liquidity management, green and sustainable finance, and trade and supply chain finance.

The HKMA established Project Ensemble in March as part of the second phase of its e-HKD pilot to study the programmability, tokenization, and atomic settlement associated with the CBDC in the trial.

E-CNY’s Adoption Challenge

China’s e-CNY, its CBDC currently in trial, has long faced challenges in broader adoption as it inevitably competes with ubiquitous cashless payment methods like Alipay and WeChat Pay.

However, authorities have sought to promote e-CNY adoption through additional trials this year. In May, the HKMA and the People’s Bank of China expanded the scope of the e-CNY pilot in Hong Kong by linking the e-CNY system with Hong Kong’s Faster Payment System (FPS).

“By expanding the e-CNY pilot in Hong Kong and leveraging the 24×7 operating hours and real-time transfer advantages of the FPS, users may now top up their e-CNY wallets anytime, anywhere without having to open a mainland bank account, thereby facilitating merchant payments in the mainland by Hong Kong residents,” Eddie Yue, chief executive of the HKMA, said at the time.

As of the end of June 2024, the e-CNY’s cumulative transaction volume reached 7 trillion yuan ($966.7 billion) since the inception of the digital yuan pilots in late 2019, according to a PBOC official.

In June, HSBC Bank’s China entity announced that it has started to offer e-CNY services for corporate clients, making it the first foreign bank in the country to provide services linked to the central bank digital currency for both retail and corporate customers.

Singapore Tests Wholesale CBDC

Meanwhile, Singapore has also made efforts to test a wholesale CBDC. In November, the Monetary Authority of Singapore said that it plans to facilitate financial institutions’ access to “common settlement assets” including SGD wholesale CBDC for market testing purposes.

The initial testnet features issuance, transfer, and redemption of the whole CBDC, with potential extensions to other forms of central bank and commercial bank liabilities. The first batch of participating financial institutions included DBS, OCBC, Standard Chartered, and UOB, according to the MAS.