Hong Kong Bank Launches Pilot Project Using Smart Contracts for Local Digital Currency

The Central Bank of Hong Kong (Bank of China Hong Kong, BOCHK) has introduced an innovative initiative by announcing the launch of a pilot project for the use of smart contracts with the local government-issued digital currency. This is a significant step in the development of digital financial technologies and may have a long-term impact on Hong Kong's financial ecosystem and potentially on other countries.

BOCHK has decided to explore the possibilities of smart contracts within contracts for pre-paid services through the BOC Pay mobile application. This means that customers will be able to use smart contracts to manage their pre-paid funds, which will automatically convert to e-HKD, the official digital currency of Hong Kong. This is important as transaction participants can use smart contracts to pay for goods and services from a variety of vendors, including those in the medical, educational, beauty, and fitness sectors.

This project promises to transform the way companies and individuals conduct financial transactions, reducing the need for complex and costly procedures. Smart contracts will be able to automatically execute predefined transaction conditions, making the process more efficient and convenient for all parties.

The words of BOCHK's digital currency research department's top manager, Chen Guang, emphasize the significance of this project for small and medium-sized enterprises. Integrating smart contracts into Hong Kong's digital dollar will allow businesses to more efficiently manage their finances and provide services to their customers.

Such innovations can be a decisive factor in the growth of small and medium-sized businesses, eliminating technical barriers and reducing the costs of financial operations. The support of digital currency and smart contracts by BOCHK can be a key driver for the development of new business models and increased competitiveness for small and medium-sized enterprises.

The integration of smart contracts into Hong Kong's digital dollar can also accelerate the implementation of the central bank's digital currency (CBDC) in the region. This means that vendors will no longer need to install additional software to accept digital payments, reducing barriers and simplifying the transition to using CBDC.

BOCHK began experimenting with pre-paid features in May when they announced the launch of a CBDC pilot program. The interest expressed by sixteen banks to participate in the project also indicates financial institutions' curiosity about the new technology.

However, despite all the prospects and potential, the regulator promises not to engage in mass e-HKD deployment until key market participants gain sufficient experience and until financial institutions obtain the necessary technological and regulatory permissions. This underscores the importance of a careful and phased implementation of new financial technologies.

In October, it was revealed that Hong Kong intends to impose a temporary ban on retail investors trading stablecoins until rules for issuance and usage are developed and introduced. These rules are expected to be presented next year, indicating Hong Kong's desire to regulate the use of digital currencies in line with international standards.