Hong Kong’s de facto central bank is looking into issuing a digital currency for the city, an idea that would dovetail with mainland China’s push for a digital renminbi.

A study will be conducted on the feasibility of a digital Hong Kong dollar and preliminary findings are expected to be ready in 12 months, the Hong Kong Monetary Authority says.

The HKMA had set up a working group to research on the subject matter, the organization’s chief executive Eddie Yue told a seminar held by the Hong Kong Association of Banks on Tuesday.

Research areas would include consumer demand, privacy protection, anti-money laundering measures, system security and legal concerns to mitigate potential risks.

Yue said the authority was open to receiving different options and had no plans at the moment to take back the right of issuing notes, currently delegated to three banks in the city.

The HKMA was studying the issue because it needed to be ready in terms of both the policies and the technicalities, and given the large market potential of e-currency, he said.

Howard Lee, deputy chief executive of the HKMA, added that the e-HKD could be issued by local banks and might not necessarily be linked to the digital renminbi.

He said that HKMA had initially considered the use of the e-HKD at the wholesale level, but advances in technology had prompted it to extend the research to cover retail usage.

Lee insisted the working group would strive for a balance between anti-money laundering measures and protection of users’ privacy, and that there would be flexibility in determining the amount of information to be captured.

“Less data will be collected when [the user] uses it less frequently,” he said, adding that other payment methods, including cash, would still be available.

In response to whether the issuing of the e-HKD would lead to changes in Hong Kong’s linked exchange rate system, Lee said the exchange rate with the United States dollar remained applicable.

Francis Fong, the honorary chairperson of the Hong Kong Information Technology Federation, said the policy of setting up a digital currency would be in line with mainland China’s blueprint on launching the e-renminbi.

Fong said that transaction records of the e-HKD could be traced, making it different from a cryptocurrency, and as such it would not affect the cryptocurrency market.

Precisely because of the digital footprint, people who distrusted the government might reject the use of such a currency, which would be traceable just like Octopus cards and credit cards, said Kevin Tsui, associate economics professor of Clemson University.

Tsui believed that the Hong Kong government was thinking of rolling it out to echo state policy, but the possibility of whether cash would still be accepted in the future was a concern.

Lee explained that the HKMA did not mention virtual currencies in its “Fintech 2025” strategy because it does not consider those as valid currencies, given that some market players saw them as investment or speculation products. Banks might however be allowed to trade in virtual currencies if they could prove they were capable of managing the risks, HKMA executive director Raymond Chan said.

Separately, Yue said the HKMA was working with the People’s Bank of China to let more Hong Kong banks join the technical testing of the digital renminbi, for example, by transferring money to the digital wallet using the Faster Payment System. The launch timeline had not yet been fixed, he said.

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