The Banque de France (BDF) and the Hong Kong Monetary Authority (HKMA) announced a partnership to explore wholesale central bank digital currencies (CBDCs) and the tokenization of financial assets.

This collaboration, as stated in a press release, is a significant step in advancing financial innovation and improving interoperability in digital currencies. The HKMA's involvement in the European Central Bank's (ECB) Eurosystem exploratory work is notable, making it one of the first non-Eurosystem central banks to participate.

Interoperability

The Memorandum of Understanding (MoU) between the BDF and HKMA aims to advance research on wholesale CBDCs and tokenization. This agreement enhances communication and cooperation, setting the stage for technological advancements.

Both the BDF and HKMA are leaders in CBDC development. The collaboration will focus on interoperability between BDF’s DL3S infrastructure and HKMA’s Project Ensemble Sandbox.

HKMA’s Project Ensemble, announced earlier this year, aims to develop innovative financial market infrastructure for interbank settlement of tokenized money through wholesale CBDCs. The project seeks to improve settlement efficiency in international transactions and enhance interoperability across different jurisdictions.

Growing interest

Global interest in CBDCs has surged, with 94% of central banks exploring digital currencies amid increasing calls for adoption to stay competitive with private digital currencies.

The Bank for International Settlements (BIS) and the International Monetary Fund (IMF) have advocated for CBDCs, highlighting their potential to modernize the financial system and enhance cross-border transaction efficiency.

The BIS also supports tokenization initiatives, which involve converting physical assets into digital tokens on a blockchain to improve transaction efficiency, transparency, and security. BIS projects like Promissa and Aurum focus on digitizing financial instruments and exploring the privacy aspects of CBDCs.

Currently, most central banks are focusing on wholesale CBDCs for large transactions between financial institutions, rather than retail CBDCs for the general public. Wholesale CBDCs are expected to be issued within the next six years, while retail CBDCs face concerns over potential financial system destabilization.