Aware of the potential impact of central bank digital currencies (CBDCs) on cross-border trade, banking regulators are increasing their interest in the offerings by collaborating with their peers.
The Hong Kong Monetary Authority (HKMA) said that it’s exploring a collaboration with the Bank of France for wholesale CBDCs with both regulators signing a Memorandum of Understanding (MoU). The bilateral efforts of Hong Kong and France come on the heels of the second phase of the European Central Bank (ECB) experiments with wholesale central bank money.
The ECB has been making inroads with CBDCs via its close-ended pilots involving several regional central banks. However, only the studies with the Bank of France border on wholesale CBDCs and tokenization make it the perfect partner for Hong Kong in the European Union.
France’s central bank has since recorded a string of early victories with its DL3S platform for real-time cross-border payments, which the ECB describes as a full-blockchain interoperability solution. Hong Kong’s attempt at wholesale CBDCs received a jolt following the launch of Project Ensemble, an experiment involving the use of tokenized deposits for settlements.
Both countries will explore the interoperability of their wholesale CBDC systems via a regulatory sandbox to strengthen communication and collaboration. The experiments will focus on cross-currency payments and cross-border transactions involving financial institutions from both countries, but the difference in currency and financial market infrastructure stands as a potential stumbling block.
“As we have set the clear objective to improve cross-border payments, we have the opportunity brought by the Eurosystem exploratory work to collaborate with the HKMA on different use cases for payment versus payment between the tokenised form of the Hong Kong dollar and the Euro,” said Denis Beau, First Deputy Governor of the Bank of France.
The press release did not mention mBridge, the most advanced cross-border CBDC project to date, with Hong Kong as a major player in its development. However, the ECB and the Bank of France have previously stated they are keeping close tabs on mBridge’s development.
Yet, the experiments by the ECB and the French central bank differ from the model proposed by mBridge, fueling speculation that the HKMA will explore a new model for CBDC settlement with its French counterpart.
France’s passion for CBDCs
France has been experimenting with the concept of wholesale CBDCs outside of the purview of the ECB, outlining three models for the offering in a 2023 report. The first is an interoperability model allowing tokenized assets to remain on their native distributed ledger while the second ropes in the ECB via an integrated model.
The third, dubbed a distributed model, combines the perks of the first two models with the bank pledging to remain technologically agnostic in the quest to develop wholesale CBDCs. A key driver of the French banking regulator experimenting with tokenization is the need to prevent stablecoins from taking over the financial ecosystem.
