The BIS Innovation Hub and the Hong Kong Monetary Authority (HKMA) cooperated on a distinct CBDC design that reflects the realities of money issuing in the special administrative jurisdiction.
HKMA presented its completed Aurum retail central bank digital currency (CBDC) prototype on October 21. The network, developed in partnership with the Bank for International Settlements (BIS) Innovation Hub, comes with a distinct structure that represents the intricacies of the current system for issuing money in Hong Kong.
Aurum comprises a wholesale interbank network and retail e-wallet. The e-wallet is developed at a local bank and comes with a smartphone interface. Notably, a validator system prevents bank over-issuance and user double redemption.
Notably, the intermediated retail CBDC is primarily used in the e-wallets and CBDC-backed stablecoins are utilized in the interbank infrastructure. The uncommon CBDC-backed stablecoin mainly mirrors Hong Kong’s existing currency system digitally, where bank notes are issued by three financial institutions and backed by the central bank.
The CBDC is a direct liability of the central bank, while the stablecoins are liabilities of the issuing bank, with backing assets held by the central bank. The authors said:
“Bringing CBDC-backed stablecoins to life has never been done before and we, therefore, felt that doing so may supplement the growing body of research on private sector stablecoins. Indeed, what distinguishes Aurum from private sector stablecoins is that Aurum’s stablecoin balances are reconciled, versus real-time gross settlement (RTGS) balances of the issuing bank with the central bank.”
The high level of decoupling between the wholesale and retail ledgers offers the system a high level of cyber-resilience, the designer stated.
Join us at @HongKongFinTech 2022 on 31 Oct at 15:05 HK time when the #BISInnovationHub team in Hong Kong present Project Aurum, a prototype technology stack for retail #CBDC @hkmagovhk
Read more: https://t.co/e3wJMWngv8 pic.twitter.com/fnxbxAN576— Bank for International Settlements (@BIS_org) October 21, 2022
Retail transactions are performed with aliases. Just the intermediary that performs Known Your Customer functions can see the identity of users. Unspent transaction output records are used to track digital currency ownership anonymously through multiple transactions as a safety measure in the case of commercial bank bankruptcy.
Hong Kong launched its central bank digital currency research in June 2021 as part of its comprehensive Fintech 2025 Strategy. The monetary authority is pursuing retail and wholesale CBDC implementation distinctly.
It noted earlier that the retail CBDC has no ‘imminent role’ to play in the payments market, but use cases might emerge rapidly. Aurum is the first project completed effectively by the BIS Innovation Hub.
