Visa and HSBC trial tokenised deposits in e-HKD trial

Visa, HSBC and Hang Seng Bank say they have concluded participation in the Hong Kong Monetary Authority’s (HKMA) e-HKD tokenised deposits pilot for a CBDC.

Visa and HSBC trial tokenised deposits in e-HKD trial

The program, which is part of the city’s broader Fintech 2025 strategy, aims to explore the practicalities and benefits of a digital Hong Kong dollar (e-HKD).

The initiative focused on the tokenization of bank deposits. This process involves the conversion of money held in banks into digital tokens on a blockchain ledger backed by the bank’s balance sheet.

While B2B payments used tokenized commercial bank money, the hypothetical eHKD CBDC was used for the interbank settlement of the deposit tokens.

The two use cases in the experiment were for high value property payments and for the settlement of credit card transactions between the acquiring bank and the merchant.

Particularly in the real estate example, blockchain enables atomic settlement where the payment and the asset both happen simultaneously.

This reduces settlement risk. Otherwise, someone can pay for the real estate, but the transfer of the property title might not occur simultaneously.

Additionally, in Hong Kong there are transaction limits for using the faster payment system (FPS).

The typical consumer limit is around HK$10,000 but regular business users can get far higher limits of HK$1 million to HK$1.5 million.

Visa’s report from the pilot program highlighted the efficiency of the system, noting that interbank transfers were completed in near real-time.

This was a significant improvement over traditional banking systems, which are typically restricted to business hours and do not operate on weekends.

During the pilot, Visa tested its blockchain networks around the clock, leveraging support from global teams across different time zones.

The company emphasised the enhanced privacy and security of the transactions, which were encrypted to ensure that details such as participant identities, balances, and transaction amounts remained confidential to those outside the banking circle.

Looking ahead, Visa is setting its sights on the growing area of tokenized assets and programmable finance.

The company cited an example from the pilot involving property payments, where the transfer of funds to a developer could be automated, thus streamlining the process and reducing delays.

According to the HKMA, the promising outcomes of the initial phase of the e-HKD program means they will progress to a second phase.