OPINION – The digital yuan and other CBDC projects: how can Hong Kong and the GBA benefit from them

Now that the People’s Bank of China has launched the Digital Yuan wallet apps for Android and iOS, and now that the Digital Yuan is about to be fully rolled out very soon, it seems like the perfect time to review what CBDCs are, what advantages they can have, main ongoing projects… especially when it comes to Hong Kong and the Greater Bay Area (GBA).

Hong Kong, through the Hong Kong Monetary Authority (HKMA), is currently engaged in 3 CBDC-related projects: the digital yuan (its tests in the Special Administrative Region), the mCBDC Bridge Project and the electronic Hong Kong Dollar (e-HKD). 

In this article, I will focus on the digital yuan and e-HKD, leaving the mCBDC Bridge project for a future article, whilst analyzing what advantages both projects can bring to HK and how can HK leverage them through its involvement in the Greater Bay Area (GBA) blueprint. 


China´s Digital Yuan, also known as DCEP, is a Central Bank Digital Currency (CBDC).

Central bank digital currencies (CBDCs) have been referred to as “the future of payments”, or even “the future of money”. A CBDC is a new form of central bank money accessible to the public, accepted as a means of payment, legal tender, safe store of value by all citizens, businesses, and government agencies. 

However, CBDCs are not cryptocurrencies, even though there is of course some relation between both categories.

The rationale behind CBDCs and cryptos is actually the opposite: whilst CBDCs are Central Bank Money adopting a digital form (therefore, legal tender issued by a central bank, representing a claim against that central bank) and thus centralized, cryptocurrencies are decentralized, and a key pillar of the movement known as DeFi (Decentralized Finance).

The Digital Yuan and its tests in Hong Kong

The digital yuan will be the start of a new era in payments worldwide, allowing China to be the first major economy to deploy its own central bank digital currency (CBDC).

In April 2020, after six years of work (the research commenced in 2014), the Chinese Government announced the launch of the tests of the country’s central bank digital currency (CBDC), DCEP (Digital Currency Electronic Payment) or Digital Yuan, in four major cities (Shenzhen, Suzhou, Chengdu and Xiong’an), notwithstanding the COVID-19 pandemic. 

On 14 August, China took a step further: its Ministry of Commerce announced that a pilot run of the country’s CBDC would begin in several new areas very soon such as the Greater Bay Area (GBA), which includes the two Special Administrative Regions of Hong Kong and Macau. The tests in Hong Kong started in 2021.

Since CBDCs are “programmable money”, it will be up to each government and central bank to decide where they want to put their focus. To me, one of the main reasons behind the Chinese government eventually launching its digital yuan is promoting the use of the yuan for cross-border payments, thus converting some of the US-dollar-denominated international trade transactions into renminbi-denominated ones, and slowly challenging the dominance of the US dollar in international trade and finance.

Therefore, it might help propel the yuan to international reserve status. It is in China´s interest to not only make the Digital Yuan become an effective domestic tool for facilitating consumers’ retail payments but to also enhance the yuan as a payments currency in the global financial system. A cross-border deployment of the digital yuan will help take some of the USD-denominated exports and convert them into yuan-based exports, thus challenging the global domination of the USD.

This is the reason why the tests in Hong Kong (and Macau) are very important for China, since, until then, China had been mostly focused on domestic use cases for its DCEP which facilitate consumers´ retail payments. However, the testing of the Digital Yuan in Hong Kong, which is one of the major financial hubs in the world, is a great first step to enhance the yuan as a payments currency in the global financial system.

However, the digital yuan does not aim to replace the Hong Kong dollar, since the digital yuan tests in Hong Kong and Macau (and its future deployment once the tests are complete) aim at cross-border transactions. Since Hong Kong is one of the most open and global cities in the Bay Area, China will be able to leverage this circumstance to promote its digital currency on a global stage, so it is undoubtedly a win-win for all the parties involved.

The electronic Hong Kong Dollar (e-HKD).

On October 4, the Hong Kong Monetary Authority (HKMA) released a technical whitepaper on retail central bank digital currency (CBDC), titled “e-HKD: A technical perspective”.

As per the press release issued by the HKMA that day, part from the continued and expanded collaborative effort with peer central banks on cross-border application of wholesale CBDC, the HKMA has started a study on the prospect of issuing retail CBDC in Hong Kong, the e-HKD, covering both technical and policy considerations, and aims to come up with an initial view by the middle of 2022.

Building on the model for retail CBDC that the HKMA is jointly investigating with the Hong Kong Centre of the BIS Innovation Hub, the Whitepaper explores potential technical design options for issuing and distributing retail CBDC.

The HKMA began researching CBDCs under Project LionRock in 2017, and has since then actively collaborated with other central banks in broadening their knowledge of wholesale CBDCs. 

Building on the knowledge and experience in wholesale CBDCs, in June 2021, the HKMA commenced Project e-HKD, which is a retail or general-purpose CBDC project that aims to study the feasibility of the e-HKD, which led to the whitepaper published last October 4.

The e-HKD will just be an electronic version of a bank note, and the mechanism of issuing the digital currency will be the same as that for physical bank notes under the currency peg system, without affecting the monetary base. The existing Hong Kong dollar peg with the US dollar will remain in place.

This announcement follows the Fintech 2025 strategy unveiled in June this year by the HKMA, whose second strategic pillar was for the HKMA to strengthen its research work to increase Hong Kong’s readiness in issuing CBDCs at both wholesale and retail levels.

Fintech 2025 aims to encourage the financial sector to adopt technology comprehensively by 2025, and also, as per Yue’s words, to “promote the provision of fair and efficient financial services” for the benefit of Hong Kong residents and the economy.

Fintech 2025 seems consistent with Hong Kong’s current role as a global fintech and trading hub. Indeed, Hong Kong’s future is not so much about remaining as the gateway to the mainland but mostly about keeping and enhancing its current status as one of the world’s most important financial centers by adopting the very economic initiatives that are relevant to the development blueprint for the Guangdong-Hong Kong-Macao Greater Bay Area.

In that sense, Fintech 2025 is aligned with the 14th Five-Year Plan (2021-25) for National Economic and Social Development and the Long-Range Objectives Through the Year 2035, which recognized Hong Kong’s economic potential at the national level.

What about Macau?

What about Macau, though?

In April, Macau moved a step closer to the potential introduction of a digital currency, thus seeking to better combat money laundering and tax evasion.

The Macau Government announced that it plans to amend laws to regulate the issuance of a virtual legal tender. According to Chief Executive Ho Iat Seng, the government will work with China’s central bank to “study the feasibility of issuing a digital currency”.

Although no formal plans have been announced on whether or how a digital currency would be implemented, some industry players worry that the mandatory use of a digital currency as the only option for buying gambling chips would be negative for Macau casinos by essentially eliminating the junket system.

Nevertheless, it seems that, in that case, the currency issued would be the digital yuan too, not an e-Pataca, which means that, if Macau finally introduces the digital yuan for its domestic operations, an e-Pataca would make little sense.

In other words, Macau´s plans are to use China´s Digital Yuan, not their own CBDC.

As I told Reuters last April 22, “The digital yuan is important for casinos to control the money flows but it’s part of a bigger strategy which involves Macau becoming diversified,” (Macau’s digital yuan plans deal a fresh blow to casino junkets, April 22, 2021).

Diversification is, therefore, the key: Macau’s future focus will be on finance. I already mentioned Macau trying to diversify its economy by creating a new stock exchange (a NASDAQ-like market denominated in yuan, facilitating fundraising by technology companies from the Bay Area economic hub).

I also explained that Macau should leverage its position as a trade and commercial services platform between China and the Portuguese-speaking countries, as well as its involvement in the Guangdong-Hong Kong-Macau Greater Bay Area and the ‘Belt and Road’ initiative.

Last but not least, I made reference to another interesting initiative, the development of ‘enclave economies´, such as the cooperation demonstration zone located in Zhongshan, or the Traditional Chinese Medicine Science and Technology Industrial Park in Hengqin.

However, Macau´s shift towards finance will not be complete until the moment the region manages to create and maintain a strong Fintech and start-up ecosystem. 

In other words, with or without digital yuan, Macau needs to create and maintain a strong FinTech ecosystem, since the GBA becoming a reality will bring many opportunities to Macau now that the Special Administrative Region is refocusing towards finance, but in order for Macau to fully tap into all these opportunities, it should develop a much stronger FinTech ecosystem.

Hong Kong’s FinTech 2025 Strategy is a good example that Macau should follow.


Hong Kong should keep up its good work when it comes to further integrating into the Guangdong-Hong Kong-Macao Greater Bay Area, since Hong Kong’s future is not so much about remaining as the gateway to the mainland but mostly about keeping and enhancing its current status as one of the world’s most important financial centers by adopting the very economic initiatives that are relevant to the development blueprint for the Greater Bay Area.

Thus, economic integration is the key to Hong Kong’s future success. While its role as the gateway to China has diminished, the special administrative region remains one of the world’s most important financial hubs and will remain so (or even increase its importance) thanks to its further integration with the mainland through many initiatives, such as the Greater Bay Area blueprint. Hong Kong’s potential has been once again recognized by Beijing in its 14th Five-Year Plan. In other words, Hong Kong’s future is linked to that of the mainland.

From its involvement in the Greater Bay Area, Hong Kong will reap the benefits from different projects and initiatives, among them all the CBDC-related projects above mentioned. The timing is perfect.

The author works as a FinTech Advisor and Researcher. He holds an MBA and a doctorate in Hong Kong real estate law and economics. He has worked as a business analyst for a Hong Kong publicly listed company and has given seminars on Central Bank Digital Currencies and Blockchain in many international conferences and universities.