The SAR is one step closer to a central bank digital currency as the Hong Kong Monetary Authority (HKMA) launched a pilot programme for e-HKD on Thursday.

The HKMA’s chief executive Eddie Yue said the programme, which involves 16 firms, is an opportunity for the authority to work with businesses to build new financial and payment infrastructure that can benefit society.

But he added that whether a digital currency is ultimately issued will be subject to several factors.

“Given the already very vibrant retail payment landscape in Hong Kong, we understand very clearly that the decision to implement e-Hong Kong dollar will very much depend on whether it can make payment more efficient and convenient than the existing payment methods, and whether it can unlock business opportunities by finding new use cases," Yue said.

The 16 firms selected in the pilot scheme will conduct tests on six categories, namely full-fledged payments, programmable payments, offline payments, tokenised deposits, settlement of Web3 transactions and settlement of tokenised assets.

Most of the use cases proposed various types of programmable payments or tokenised assets, which will require e-HKD to be a programmable retail digital currency.

This means sets of rules can be embedded inside the money, making it possible to automate transactions based on pre-determined criteria using smart contract technology.

Bojan Obradović, chief digital officer of HSBC Hong Kong, said this feature gives e-HKD the potential to address various types of fraud common among existing payment systems.

He added that the bank is planning to test out the potential merits of e-HKD by building an e-HKD ecosystem in the coming months, in which hundreds of participants and merchants on the Hong Kong University of Science and Technology campus will participate.

“The unique features of programmable money allow us to issue tokens and transfer them or move them or perform payments under specified terms and conditions, which would then be a capability that would allow us to expand this across various types of fraud scenarios, including online cash and delivery and even the mortgage scenario that's happened recently in Hong Kong,” he said.

Hang Seng Bank also proposed programmable payments, such as government grant disbursement and merchant reward programs.

“Government or public organisations can distribute subsidies in real-time, for example, continuing education funds or elderly health care vouchers to the targeted beneficiary in the form of e-HKD tokens. All terms and conditions, again, for example, limiting the use in education centers or medical centers, can be programmed into the tokens flexibly,” said Gilbert Lee, the bank's head of strategy & planning and chief of staff to chief executive.

Two other firms taking part in the pilot scheme, Fubon Bank Hong Kong and Ripple Labs, said they will join hands and explore making it faster for Hongkongers to sell their real estate assets.

"For the notion of people who own a home and have that as one of their primary main assets in their total wealth portfolio, the possibility of that increase in value over time is immensely important to both their current living as well as their retirement," said Brooks Entwistle, from Ripple Labs.

Academics working on computer sciences, business and the law will partner with Hong Kong’s de facto central bank on research.