Di Gang Attempt to Expand Pilot Application of Digital RMB Between Mainland China and Hong Kong

Di Gang Ventures into Expanding Pilot Program for Digital RMB Usage in Mainland China and Hong Kong

Author: Tang Jun; Source: Mayflower Finance

On November 3rd, Di Gang, Deputy Director of the Digital Currency Research Institute of the People’s Bank of China (referred to as “Di Research Institute”), summarized the three major application scenarios of digital RMB in mainland China and discussed the application of digital RMB in Hong Kong at the Hong Kong Technology Week forum on the “Cross-border Application and Prospect of Hong Kong’s Digital RMB”.

Di Gang stated that the current application cases of digital RMB in mainland China mainly include three major scenarios.

The first is to facilitate payment by overseas visitors to China. Since the 2022 Beijing Winter Olympics, digital RMB has provided convenient digital RMB payment services for overseas athletes and event-related personnel. Currently, digital RMB supports mobile phone number registration and wallet opening in more than 100 countries and regions, supports linking wallets to overseas VISA and Mastercard for easy top-up, and for Hong Kong users, supports wallet top-up through Faster Payment System (FPS) using local Hong Kong bank accounts, with no top-up fees.

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The second is the integration and interconnection of digital RMB with existing payment systems. This includes two aspects: barcode interconnection and digital RMB settlement in payment platforms, such as WeChat Pay, enabling direct payment with digital RMB wallets. “Through these two aspects of practice, it is also proved that digital RMB is not meant to replace anyone, but to promote the upgrading and iteration of the entire financial payment system, play the role of central bank currency, enhance the security and interconnectivity of the financial payment system, improve the efficiency of currency circulation, and reduce transaction costs,” Di Gang said.

The third is the application of digital RMB in the public sector. Digital RMB can effectively unify the flow of funds and information and can be loaded with digital RMB smart contracts to achieve intelligent payment, thereby solving current pain points in the public sector and supporting digital transformation of enterprises. For example, the application of digital RMB in the supply chain finance scene allows commercial banks to accurately trace the destination of loan funds.

Di Gang introduced that in recent years, the Di Research Institute has conducted in-depth research on cross-border cooperation with the Hong Kong Monetary Authority, and relevant products or solutions are being gradually implemented. In the cooperation, three principles of “no loss,” “compliance,” and “interconnectivity” are always upheld.

Based on these principles, the digital RMB system is connected with the Hong Kong “Faster Payment System” through local Hong Kong banks, enabling real-time conversion between RMB and Hong Kong dollars. Currently, both sides have achieved the use of digital RMB by residents of mainland China and Hong Kong in offline cross-border consumption and online cross-border e-commerce scenarios.

Regarding the further application of digital RMB in Hong Kong, Di Gang said, “In the future, under the guidance of the headquarters, the Di Research Institute and the Hong Kong Monetary Authority will jointly research and promote the integration of the digital RMB system and ‘Faster Payment System’ at the infrastructure level, further enhancing the efficiency of cross-border business processing and reducing transaction costs.”

In addition, on the basis of continuously expanding the scope of personal application scenarios and improving the personal user experience, we can try to promote the pilot application of digital RMB between the two places.

Digang mentioned that there is a demand for enterprises to reduce cross-border payment costs through digital RMB. Therefore, under the bilateral cooperation framework, we can study the cross-border payment applications of digital RMB in bulk commodity trade and service trade under oil and gas, etc.

Here is the original speech by Digang:

First, can you share some key application cases of digital RMB in mainland China and what value it can bring to Hong Kong in cross-border scenarios?

Digang: Regarding the application cases of digital RMB in mainland China, I would like to introduce them from the following aspects:

First, it supports the convenience of foreign visitors to make payments in China. From the Beijing Winter Olympics in 2022 to this year’s Chengdu Universiade and Hangzhou Asian Games, digital RMB has made wonderful appearances in these important sports events, and also provided convenient digital RMB payment services for foreign athletes and event-related personnel. Currently, the digital RMB app supports registration and wallet opening with mobile phone numbers from more than 100 countries and regions, supports the association of foreign VISA and MasterCard with the wallet for recharge anytime and anywhere, and for Hong Kong users, it also supports recharging the wallet through Faster Payment System (FPS) by using local Hong Kong bank accounts, without any recharge fees. In addition, it also supports foreigners to purchase various forms of digital RMB hardware wallets, including card-style, wristband, and wearable devices, etc., in bank branches using foreign currencies.

Second, the integration and interconnection of digital RMB with existing payment systems. There are two specific aspects. One is barcode interconnection, where users can scan the existing payment barcodes for electronic payments and use digital RMB for payment, without the need for merchants to change their codes and users to change their habits. The other is the settlement of digital RMB in payment platforms. Familiar platforms include WeChat Pay, Alipay, JD Pay, Meituan Pay, etc., which can directly associate with digital RMB wallets for payment. Through the practices in these two aspects, it also proves that digital RMB is not intended to replace anyone, but to promote the upgrade and iteration of the entire financial payment system, play the role of central bank currency, enhance the security and interconnectivity of the financial payment system, improve the circulation efficiency of currency, and reduce transaction costs.

Third, the application of digital RMB in the public domain. Digital RMB can effectively unify the flow of funds and information flow, and can be loaded with digital RMB smart contracts to achieve intelligent payment, thereby solving the pain points in the public domain and supporting the digital transformation of enterprises. For example, in the supply chain finance scenario, when commercial banks provide financing to small and medium-sized enterprises, they can load digital RMB smart contracts to make the funds paid in limited scenarios or for limited purposes. In this mode, commercial banks can accurately track the flow of loan funds, conduct timely and comprehensive risk assessment, effectively reduce the financing costs of enterprises, and improve the efficiency of enterprise operations.

The second question, what value can the cross-border application of digital RMB bring to Hong Kong? In terms of cross-border cooperation and application, digital RMB always adheres to the principles of “no loss,” “compliance,” and “interoperability,” fully respecting the currency sovereignty and monetary policies of relevant currency authorities and the technical and business sovereignties of various jurisdictions.

Based on the principles mentioned above, we have conducted in-depth research on cross-border cooperation with the Hong Kong Monetary Authority, and relevant products or solutions are being implemented gradually.

As an example, let’s take the mainland-Hong Kong cross-border payment project using digital RMB. The cross-border application of digital RMB enables the two-way interconnectivity of payment services between Hong Kong and the mainland, enhancing the convenience of cross-border payments for residents of both regions and supporting the development of the Greater Bay Area integration. Since the cooperation started in September 2020, we have conducted two stages of technical testing and successfully enabled the use of digital RMB by residents of the mainland and Hong Kong in offline cross-border consumption and online cross-border e-commerce scenarios.

In terms of business design, to respect the habits of Hong Kong residents and merchants using their local currency and uphold the “no loss” principle, we have established a connection between digital RMB and the “FPS” fast payment system in Hong Kong through local banks. This supports the interoperability between digital RMB and the Hong Kong account system, meeting the needs for digital RMB exchanges and merchant settlements. In terms of technical design, the digital RMB system has converted its technical standards to be compatible with the FPS standards. By using the FPS App-Call-App Specification, it supports launching the Hong Kong local bank’s mobile banking app through the digital RMB app. This design avoids the need for additional modifications to the “FPS” system and local commercial banks in Hong Kong, demonstrating the “no loss” and “interoperability” principles.

During the Hangzhou Asian Games, the Hong Kong delegation experienced the convenience of recharging their digital RMB wallets and using them instantly through the “FPS” system. Behind this is the interconnectivity between the digital RMB system and the “FPS” system, enabling real-time exchange between RMB and HKD. In the future, under the guidance of the headquarters, the Institute of Digital Research will work together with the Hong Kong Monetary Authority to study and promote the connection between the digital RMB system and “FPS” at the infrastructure level, further enhancing the efficiency of cross-border business processing and reducing transaction costs.

The advancement of bilateral cross-border projects can deepen exchanges between mainland and Hong Kong residents, attract mainland tourists to visit Hong Kong, promote the development of the tourism industry in Hong Kong, and facilitate economic exchanges and cooperation between the two regions. Additionally, utilizing financial technology methods such as smart contracts in digital RMB can continuously improve and enhance the cross-border infrastructure capabilities between the mainland and Hong Kong, facilitating the flow of funds between the two regions and strengthening Hong Kong’s position as an offshore RMB business center, thus enhancing Hong Kong’s international competitiveness.

2. Regarding the future development of digital renminbi in Hong Kong, what other plans are there besides personal applications?

Digang: Some people believe that the retail scenario means that digital renminbi can only be used for small payments and cannot be used for large payments. In fact, the difference between wholesale and retail is not determined by the amount of money. In fact, except for payment transactions between financial institutions, all payment transactions between other entities are considered retail. This means that as long as one party is involved in payment transactions for individuals, companies, institutions, or government units, it is considered retail payment.

With the advancement of the digital renminbi bilateral cooperation project between the mainland and Hong Kong, we can explore the pilot application of digital renminbi between the two regions while continuously expanding the acceptance range of personal applications and enhancing the user experience.

In the preliminary stage, through on-site research at enterprises, we found that many companies face issues such as single cross-border payment channels, high costs, and low efficiency in international trade. They expressed their desire to participate in the bilateral pilot project in Hong Kong and use digital renminbi to reduce cross-border payment costs. Therefore, within the framework of bilateral cooperation, we can study the cross-border payment applications of digital renminbi in bulk commodity trade and service trade, such as oil and gas.

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