The Hong Kong Monetary Authority (HKMA) has launched an initiative that allows financial institutions to experiment with the use of its wholesale central bank digital currency (wCBDC) in a controlled space.

The digital currency was introduced in March with the purpose of letting financial institutions settle interbank payments and trades faster and easier.

Project Ensemble Sandbox provides a virtual environment in which financial institutions can look at how to use digital currencies in various scenarios, with no risk of affecting the real-world market.

Speaking at the launch ceremony, HKMA chief executive Eddie Yue said he is pleased to see financial institutions expressing great interest in experimenting with wCBDC.

He said the launch of the sandbox is the city’s first step towards harnessing blockchain technology and smart contracts.

“We see the sandbox as a pioneering financial infrastructure and also a collaborative platform to test and refine different use cases, covering areas ranging from fixed income and investment funds, liquidity management, green and sustainable finance to trade and supply chain financing,” he said.

“But the potential of the sandbox extends far beyond these initial applications. It is designed in a way that will enable it to support various forms of digital money and digital assets and ensure seamless integration with other infrastructure in the future.”

Yue said he hopes the pilot use cases would help set industry benchmarks for tokenisation in Hong Kong, as well as offer solutions to pain points in the real economy, including supply chain finance and cross-border payments.

The chief executive of the Securities and Futures Commission (SFC), Julia Leung, said the financial regulator fully supports HKMA's project.

She said the SFC has been ahead of the game in providing guidance to the industry on the use of tokenised securities, as well as allowing the launch of investment funds in the field.

“We are among the first to set clear regulatory expectations in these areas… These pilots have demonstrated cost savings and efficiency gains in the different phases of the product lifecycle, but they also point to the hurdles in reaping the full benefits of on-chain primary issuance, secondary market trading, custody, and hypothecation during the full product lifecycle. This is where today's sandbox comes in,” she said.

Leung added that the SFC is aware of hurdles the industry participants may face as they pilot test different use scenarios in the sandbox and assured them that the SFC will work closely with the HKMA to provide guidance and address concerns that arise.

Representatives from six sandbox participants – Bank of China, Hang Seng Bank, HSBC, Standard Chartered Hong Kong, HashKey Group and Ant Digital Technologies – also attended the ceremony and spoke about their individual plans for the sandbox.

The HKMA said it will hold regular meetings with the financial institutions and the SFC to review the sandbox candidates' readiness to operate in the live market.

HKMA deputy chief executive Howard Lee said there is no specific timetable or expected duration for the sandbox programme, saying some cases may reach maturity in two to three months, while others may take longer.

“I would say it would depend on individual cases and what kind of activities they are going to touch upon. If they are talking about tokenised bond this is a pretty mature financial product … that would be more ready to be transferred to the real life environment using different settlement methods or even tokenised deposit to do it… But for those who are a little bit less familiar and they might require more discussion with HKMA, with SFC, then these projects might need a little bit more time,” he said.