The Hong Kong and Thai central banks have moved a step closer to being able to use central bank digital currencies (CBDCs) to make payments between the two countries more efficient, the banks said on Wednesday.
The Asian banks' work, part of a project begun in July, comes a day after the central banks of Britain, the euro zone, Japan, Sweden and Switzerland said they would jointly study the case for digital currencies.
The People's Bank of China has progressed the furthest with CBDCs, and the head of its digital currency research institute, Mu Changchun, told a public forum in August that its project was "almost ready".
The Chinese project focuses on payments within China, unlike the Hong Kong and Thai initiative. Many central banks are looking into the potential for CBDCs - money but in digital form. They differ from cryptocurrencies like bitcoin, which are produced by solving complex math puzzles and governed by disparate online communities instead of a centralised body.
Previous studies have largely focused on the technical challenges of using CBDCs for cross-border payments. Wednesday's report concentrated on practical issues like foreign exchange pricing and the effect on liquidity.
The two banks said they had successfully built a prototype system that allowed banks in the two countries to use a CBDC to transfer funds and make payments between themselves, potentially cutting layers out of typical existing processes.
The work was "an important first step to solve the pain points of low efficiency and high costs in traditional cross-border payments," said Edmond Lau, senior executive director of the Hong Kong Monetary Authority (HKMA).
But the two banks have not set a time for a real transaction, Colin Pou, executive director at the HKMA, told a media briefing in Hong Kong. The project could be expanded to include other central banks, or linked with other, separate initiatives, Pou added.
Thailand is one of Hong Kong's top 10 trading partners, with trade between the two totaling HK$153 billion ($19.69 billion) in 2018, according to Hong Kong official data. The two central banks worked with commercial banks including HSBC and ZA Bank, a new online bank run by online insurer Zhong An, as well as Bangkok Bank. The technology partner was R3, which operates the Corda blockchain platform.
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