Hong Kong is making progress in its efforts to launch a central bank digital currency (CBDC), as Visa, HSBC, and Hang Seng Bank have successfully completed phase 1 of a trial with the digital Hong Kong dollar (e-HKD). Visa announced on November 1 that it achieved “near real-time” finality with transfers using tokenized deposits of the e-HKD. This method involved burning the tokenized deposits on the sending bank’s ledger, minting them on the receiving bank’s ledger, and settling interbank via the simulated wholesale CBDC layer. This process allows for settlement in an atomic manner and improves liquidity management. Visa’s test pilot of the digital HK dollar demonstrated 24/7 functionality, surpassing that of traditional financial systems, which often do not operate after hours or on weekends. It also highlighted the ability to transact with tokenized deposits while keeping them encrypted, thereby protecting the identity, balances, and transaction amounts of non-bank users. Visa plans to explore additional use cases for the e-HKD, such as tokenized asset markets and programmable finance for automating real estate transactions. The company also expressed interest in expanding retail solutions and digital cross-border payments. While no specific timelines have been provided for the full launch of the Hong Kong digital dollar, the successful results of the trial mark a significant step forward. The Hong Kong Monetary Authority noted in an October 30 report that there are still cybersecurity risks to be addressed with a programmable CBDC. Hong Kong has been striving to establish itself as a Web3 hub for blockchain in the Asia-Pacific region with the support of the central government in Beijing. However, recent setbacks, such as the collapse of the JPEX crypto exchange and subsequent loss of over $150 million for Hong Kong investors, have damaged trust in cryptocurrencies among local residents. In a separate development, Hashkey, one of the first crypto exchanges to receive a regulatory license in Hong Kong, has announced plans to introduce an exchange token called “HashKey EcoPoints” (HSK) in 2024. The total supply of HSK will be 1 billion tokens, with 65% reserved for users, 30% for Hashkey staff, and 5% for the ecosystem treasury. The HSK token will be minted on Ethereum and distributed as incentives to users and distributors. It can be used to settle trading fees, gain early access to future token subscriptions, and upgrade exchange services. Hashkey also commits to buying back HSK tokens using up to 20% of profits generated from related services. Regulatory approval is still required for the HSK token design plan. Lastly, nineteen Chinese nationals have been sentenced for their involvement in a $308 million money-laundering scheme utilizing cryptocurrencies. Operating between November 2020 and April 2021, the syndicate laundered Bitcoin and Tether for proceeds related to online gambling and wire fraud. They used a sophisticated scheme of peer-to-peer transactions and unusual pricing to avoid monitoring and identification requirements. The accused individuals withdrew cash from bank counters in different provinces and transported it by plane. The 19 individuals have been sentenced to prison terms ranging from six months to six years. Wire fraud involving cryptocurrencies has become a widespread issue, prompting China’s Central Government to crack down on crypto-related activities in the country. These enforcement actions have sometimes impacted foreign investors using Chinese-based services unintentionally.
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