Visa, a global leader in payments technology, has successfully completed a pilot test of tokenized deposits using CBDCs (central bank digital currencies) in partnership with the Hong Kong Monetary Authority (HKMA). This was part of the HKMA’s “Digital Hong Kong Dollar” pilot program, which began in May and is the first use case globally to utilize tokenized deposits for interbank B2B self-transactions and cross-chain transactions.
The pilot focused on interbank business-to-business (B2B) payment processes, including property payments and settlements between payment institutions and merchants. It demonstrated the potential benefits of tokenization, including increased payment speed, improved settlement risk management and control, enhanced payment network resilience, and greater transaction transparency. The tokenized deposits were transacted using encryption, ensuring privacy and security.
Visa expressed its commitment to further exploring the use of tokenized deposits in various areas, such as tokenized asset markets and programmable finance. For example, in the “Property Payments” use case, tokenized deposits could automate payments to property developers upon reaching the completion date of a contract, minimizing delays.
The e-HKD initiative will move into Phase 2 following the successful completion of the trial. In May, the HKMA selected Visa as one of 16 firms from the financial, payment, and technology sectors to participate in the first round of e-HKD pilots for 2023. The HKMA has been collaborating with central and commercial banks through Project mBridge to develop solutions for faster, more cost-effective, and transparent cross-border payments.
The findings from the phase one trial highlighted the potential benefits of programmability, tokenization, and atomic settlement for Hong Kong’s CBDC, benefiting consumers and businesses. The time to final settlement for an interbank transfer was near real-time, as confirmed through the pilot’s testing between the banks. Tokenized deposits were burned on the sending bank’s ledger, minted on the receiving bank’s ledger, and simultaneously settled interbank via the simulated wholesale CBDC layer.
On September 25, HKMA CEO Eddie Yue revealed that mBridge would expand and be commercialized as it welcomed new banking members from China, Hong Kong, Thailand, and the United Arab Emirates. These developments are a strong indication of the potential for CBDCs, and their potential to revolutionize the payments industry.