China's 'Digital Yuan' Also Used in Hong Kong... Full-Scale Testing for Overseas Payments Begins

Used in National Pilot Cities Including Hong Kong...Accelerating Internationalization
Potential to Counter the US Dollar as Key Currency...Aiming to Protect the Financial System

[Image source=Yonhap News]

[Asia Economy Reporter Hyunwoo Lee] The Chinese government, which is actively promoting the world's first introduction of a central bank digital currency (CBDC), announced plans to pilot the digital yuan in Hong Kong, a special administrative region that uses a separate legal tender from the yuan, as a test for overseas payments. This is expected to become a key tool to counter the US dollar hegemony amid escalating US-China disputes.

According to local media including China’s Daily Economic News on the 8th, We Weiyuan, Chief Executive of the Hong Kong Monetary Authority (HKMA), which acts as Hong Kong’s central bank, revealed in a recent article titled "New Trends in Financial Technology, Offshore Payments" that HKMA is preparing to pilot the use of digital yuan for offshore payments in collaboration with the People's Bank of China, China’s central bank.

Chief Executive We said, "There have been encouraging developments recently regarding cross-border payment operations," adding, "We are making related technical preparations while discussing the digital currency research institute of the People's Bank of China and the technical testing plan for offshore payments using the digital yuan." He emphasized, "The yuan is already frequently used in Hong Kong," and "Some of the cash in circulation, the digital yuan, will provide greater convenience to travelers moving between the two locations (mainland China and Hong Kong)." He further added, "Although a specific timetable for the introduction of the digital yuan has not yet been announced, once the digital yuan is fully utilized, residents of Hong Kong and mainland China will have an additional payment method when consuming in each other's regions."

The pilot operation of digital currency in Hong Kong, which uses a separate legal tender called the Hong Kong dollar, is interpreted as a kind of test in preparation for overseas payments. The Chinese government previously conducted pilot projects for the digital yuan in cities such as Shenzhen, Xiong’an, Suzhou, Chengdu, and venues scheduled to host the Winter Olympics. Then, in October this year, a large-scale public pilot service involving 50,000 citizens was launched in Shenzhen, Guangdong Province. The People's Bank of China plans to distribute 20 million yuan worth of digital yuan, 200 yuan (about 30,000 KRW) each, to 100,000 citizens in Suzhou, Jiangsu Province, starting from the 12th, marking the second large-scale public test.

The Chinese government plans to increase the use of digital yuan for overseas payments, including in international trade and payment operations such as the Belt and Road Initiative (the land and maritime Silk Road), a large-scale overseas investment project. This is analyzed as a measure to check the hegemony of the United States, which controls the key currency, the dollar, and to protect the relatively vulnerable financial system.