Hong Kong Advances Retail e-HKD Testing for Mortgage and Lending Transactions

The Hong Kong Monetary Authority (HKMA) has continued testing its retail e-HKD, the proposed digital version of its local currency. The authorities have already conducted a six-month experiment to ensure the smooth running of the virtual currency. Now, they are moving on to the next stage, testing how it works for pricing and distributing mortgages.

A release by the South China Morning Post revealed that the next phase will involve a deeper study of the technology, business plans, and laws needed for using e-HKD for transactions. This test will be carried out with some selected participants to see how the currency could work for mortgages and other lending and borrowing activities.

Tokenization of Assets and Potential Regulatory Framework

Currently, at the trial stage, the proposed digital currency is expected to speed up the process of borrowing funds from more than one lender without having to visit banks. They will also come at preferential rates and ensure that borrowers get their loans disbursed faster. However, it is still to be seen whether the Hong Kong authority will form a new regulatory body to watch over activities related to mortgages and lending practices involving e-HKD.

In the inaugural e-HKD pilot program, top companies such as Boston Consulting Group (BCG), HKT Payment, and ZA Bank are of the opinion that the adoption of e-HKD could further pave the way for the tokenization of diverse assets, increasing the number of assets available for tokenization. According to BCG’s estimates, the assets available for tokenization in Hong Kong are about HK$36 trillion, about $46 trillion, and comprise mostly residential property. Tokenizing the assets can easily make them available as collateral when using digital currency since they are all easily accessible.

Aside from making it easier for people to borrow, lenders could also benefit from e-HKD. They can easily lower rates since the digitization of the whole process makes it less risky for lenders. In the case that borrowers default on their loans, lenders can easily take possession of the collateral involved to recover their money. The whole process would be automated with the use of smart contracts, ensuring that no party is cheated and the contract only goes as agreed upon.

Embracing Digital Currencies and Enhancing Financial Access

This new development comes after China’s recent launch of digital yuan, which was made available in Hong Kong’s local shops. The digital currency, e-CNY, can only be used by Hong Kong residents, and they can deposit up to 10 thousand CNY in their wallets.

With the growing trend of financial institutions investing in digital assets such as tokenized bonds and real estate, the need for a digital currency like e-HKD to speed up transactions and make them easier becomes compelling.

According to Raymond Chan, vice chairman of the Institute of Financial Technologists Asia, tokenizing assets makes them more liquid, thus making them more accessible to a wider range of investors. He added that banks will see an opportunity to offer custodian assets for tokenized assets, therefore providing security and trust to investors who hold these digital assets.