Just last week the Hong Kong Monetary Authority (HKMA) wrapped up a very successful test. This included exchanging their central bank digital currency, the e-HKD, with the new stablecoin, A$DC. This test was part of Phase 2 of the e-HKD+ pilot program, which explores the potential of a digital Hong Kong dollar (HKD) and its applications with tokenized assets. Chainlink’s Cross-Chain Interoperability Protocol (CCIP) was key in making this asset exchange possible. The test featured participants such as Visa, ANZ, China AMC and Fidelity International. This is a big, positive step in finding new ways that digital currencies can complement each other.

As an example, in October 2023 the Hong Kong Monetary Authority (HKMA) kicked off its e-HKD pilot program. This initiative is otherwise known as e-HKD+. The goal of the e-HKD pilot project is to investigate the potential of a natively digital version of the Hong Kong currency.

Phase 2 of the e-HKD+ pilot program expanded its scope beyond payments to explore the support of tokenized assets. This expansion unlocks a world of potential use cases and partnerships within the fast-evolving digital asset ecosystem. The experiment with e-HKD and stablecoin A$DC was conducted under Phase 2 of the e-HKD+ pilot program.

Cross-Chain Interoperability

Chainlink’s Cross-Chain Interoperability Protocol (CCIP) served as the bridge technology that powered the exchange test between e-HKD and A$DC. CCIP enables safe and trustworthy exchange of information and value across heterogeneous blockchain ecosystems. ANZ’s private blockchain (DASchain) was connected to a public Ethereum testnet (Sepolia) for the cross-chain exchange test.

This implementation of Chainlink’s CCIP demonstrates the growing importance of interoperability in the development and adoption of new digital currencies. This showcases the future of seamless transactions between any digital assets, whether they are crypto, NFTs, collectibles, or other tokens across any blockchain.

This core cross-chain functionality is key to enabling a more connected and efficient digital economy. It enables users to nimbly transfer value across various ecosystems, opening new doors of opportunity to innovate and collaborate.

Participants and Assets

The use case for the test included an exchange of e-HKD for A$DC, as well as a tokenized money market fund and asset managers. Visa, ANZ, China AMC, and Fidelity International took part in the e-HKD and A$DC dual test. Major financial institutions including Visa, ANZ, China AMC, and Fidelity International are all getting on board. Their participation is significant because it exemplifies the growing interest, curiosity, and overall normalization of digital currencies in the legacy financial sectors.

The stablecoin we used for the test with e-HKD is A$DC, collateralized in Australian dollars on the Ethereum blockchain. A$DC is an Australian dollar-pegged stablecoin issued on the Ethereum blockchain. Its application just creates additional complexity, but at the same time demonstrates the great promise for cross-currency transactions in the digital realm.

Asset managers have thrown themselves headlong into the market. The addition of a tokenized money market fund is an excellent example of how diverse the use cases for CBDCs and stablecoins can be. These in-flight tests have provided important lessons on how to integrate new digital assets into the current financial infrastructure. They shed light on the processes necessary to develop new and creative financial products.

Implications for Hong Kong and China

Beyond the technical architecture, the successful e-HKD and A$DC exchange test has critical implications for Hong Kong’s future as well, and its continually evolving relationship with China. Although part of China, Hong Kong maintains its own currency—the Hong Kong dollar (HKD). While China has launched their own CBDC, the digital yuan, Hong Kong has pursued their own monetary policy and currency.

The e-HKD pilot project underlines Hong Kong’s sincere commitment to becoming a leader in the digital currency space. It speaks to the city’s resolve to continue to be the preeminent financial capital of the region. Beyond illuminating the nuances of effective pilot projects around the world, the initiative offers lessons for China as it develops and tests its own digital yuan.

The e-HKD naturally interacts with other digital assets such as A$DC. This increased connectivity has the potential to enhance cross-border payments and trade between Hong Kong and other countries. This would only serve to reinforce Hong Kong’s long-established role as a regional gateway for international trade and investment.