Digital payments

While much of the recent public conversation on digital assets has focused on cryptocurrencies and trading platforms, another major focus for many Hong Kong banks lies in practical applications of blockchain technology. Key areas of exploration include developing wholesale settlement solutions, advancing retail CBDC use cases, and navigating evolving regulatory frameworks for stablecoins.

The HKMA has been at the forefront of these developments, with Project Ensemble serving as a landmark initiative exploring the use of wholesale CBDC (wCBDC) to facilitate the settlement of tokenised assets. Unlike traditional CBDC pilots, this project uniquely integrates digital currency with asset tokenisation, enabling seamless and near-instantaneous transactions. Major financial institutions, including HSBC, Hang Seng, Standard Chartered, and Bank of China, are participating in the sandbox, focusing on interbank settlements, tokenised bonds, and trade finance applications.

On the retail side, the e-HKD initiative is progressing into its second phase, with the HKMA testing real-world applications of a retail CBDC. Key focus areas include programmable payments, offline functionality, and balancing regulatory compliance with user anonymity. The sandbox includes participation from fintech firms and traditional banks, with results expected to shape Hong Kong’s longterm CBDC strategy.

Banks in Hong Kong and abroad are increasingly taking notice of stablecoins given their rapidly growing presence in global digital asset markets. To date, USD stablecoins have dominated trading on crypto exchanges, but smaller fiat denominations (including Hong Kong dollar stablecoins) are now on the rise.

In May 2025, the Hong Kong government passed the Stablecoins Bill to establish a licensing regime for fiat-referenced stablecoin (FRS) issuers. These issuers will need to obtain a license from the HKMA and adhere to requirements such as proper reserve asset management, client asset segregation, and compliance with AML and risk management standards.

Unlike the global market, where USD stablecoins are primarily used for crypto trading, Hong Kong plans to leverage HKD stablecoins for innovative applications like programmable money, escrow services, collateral management, and government and commercial vouchers.

Comparatively, Singapore has had a stablecoin issuance regime in place for nearly two years, and it is now being formalised into law. Use cases of SGDdenominated stablecoins are still limited, but the city-state remains a global leader in USD stablecoin use, which continues to be largely confined to crypto trading and decentralised finance.

As interest in blockchain payment solutions from the private sector and government continues to grow, banks in Hong Kong have an opportunity to position themselves as leaders in Asia Pacific – and potentially globally – from an innovation perspective. They should consider whether to develop internal DLT solutions, collaborate with fintech providers, or pursue targeted acquisitions to speed up development. Simultaneously, they should also actively engage with regulators regarding licensing applications and compliance. A balanced approach is important: banks should ensure their technology risk, and anti-money laundering (AML) frameworks are robust enough to manage the fast-paced, 24/7 environment that digital money creates.

The increased transaction speeds enabled by alternative payment infrastructures will require banks to enhance their liquidity management capabilities, especially during periods of market stress. The HKMA has rightly identified tokenised deposits as an area needing additional safeguards. Meanwhile, infrastructure compatibility, cybersecurity risks, and talent shortages are ongoing concerns that should also be addressed.

Ultimately, financial institutions should see this period as an opportunity to experiment and align their operations with the HKMA’s strategic vision. This transformation won’t happen overnight, so banks need to begin developing their personnel and systems now to prepare for the future. Although the transition is gradual, numerous initiatives in Hong Kong, such as the HKMA’s newly launched super advisory incubator for distributed ledger technology adoption, are in place to support banks in their transition.