Hong Kong’s Monetary Authority recently announced that a deal had been signed between subsidiaries of the Institute of Digital Currency of China’s central bank and Hong Kong Interbank Clearing Limited. This deal will entail conducting a proof of concept trial. The trial will aim to connect the PBoC Trade Finance Platform and the eTradeConnect platform using blockchain technology.
Once the connection goes live, it will provide firms in China and Hong Kong with better convenience when it comes to trade finance services. It will also allow banks in Hong Kong to speed up the expansion of their trade finance operations.
The Hong Kong Monetary Authority launched the eTradeConnect platform in 2018. This platform aims to improve efficiency, reduce risk, and build trust amongst trade participants. It also aims to enable trade counter-parties to access financing via the digitization of trade documents and automation of the trade finance processes. This platform was built to incorporate features of the blockchain into its operations.
Commercialization was first announced in October 2017 after a successful proof of concept trial that was carried out by HKMA. This project initially had seven major participating banks but an additional five banks later joined the project. The result is that it is currently comprised of a consortium of 12 banks.
A Link to China’s Trade Finance Blockchain
China has a trade finance blockchain called the Bay Area Trade Finance Blockchain Platform. The platform was created in collaboration with the Digital Currency Institute. Thus far, it has processed $4.5 billion and it is comprised of a consortium of 29 major banks.
This collaboration will link the Chinese platform to the eTradeConnect platform based in Hong Kong. Several banks have been working on both platforms via their subsidiaries. Both of these platforms had plans to cooperate with similar overseas platforms. However, the Chinese platform was seeing sluggish growth due to a lack of adoption by foreign partners.
This is not the first deal that the HKMA has signed regarding its eTradeConnect platform. They have worked on various pilot schemes with similar platforms in the region who wish to experiment with blockchain technology. For instance, they are jointly working with the Bank of Thailand to implement a digital currency backed by a central bank for cross-border payments.
Additionally, the eTradeConnect recently completed a proof of concept trial with the we.trade platform. The trail involved connecting digital trade finance platforms in Europe and Hong Kong. Thus far, the trial seems to have gone quite well. Additionally, they are working on a similar project with Singapore.
More CBDC News
It is most likely that this will not be the end of cooperation between China and Hong Kong. It could be a warm-up to the integration of China’s central bank digital currency with the Hong Kong financial system. With Hong Kong being a major financial hub in Asia, this could be big news. A central bank digital currency could help to increase the speed of trade while also lowering the cost of transactions.
Image Source: Flickr / Bernard Spragg