Hong Kong, Thailand to roll out two-tier tokens in digital currency prototype to speed up cross-border trade settlement

Georgina Lee

The monetary authorities of Hong Kong and Thailand are poised to roll out a two-tier digital token, part of the process for creating a prototype for cross-border fund transfers between the two economies using financial technology, or fintech.

The first tier of the prototype, known as Project LionRock-Inthanon, involves the issuance of a token to Hong Kong banks taking part in the pilot programme, according to a spokesman of the Hong Kong Monetary Authority (HKMA). The second tier involves the banks distributing the tokens to their corporate customers for settling wholesale payments with other banks, or with other companies, the spokesman said in response to queries by South China Morning Post.

The two-tier system, similar to one under development by the People’s Bank of China, is a step forward in Project LionRock-Inthanon, which was established in November based on a fintech collaboration between HKMA and Bank of Thailand in May. The use of the blockchain-backed token is expected to speed up currency settlement between the two economies - with US$19.6 billion in bilateral trade last year - giving companies and banks more competitive exchange rates for the Hong Kong dollar and the Thai baht.

It’s also a different usage case compared with the digital currency under development by China’s central bank, which is focused on replacing coins and banknotes in circulation to support retail transactions, said the HKMA’s senior executive director Edmond Lau. Project LionRock is focused on streamlining cross-border transfer and payment between banks and companies, Lau said.

“The prospect of issuing a central bank digital currency for retail purpose in Hong Kong is limited, as we have so many retail payment services (ranging from) credit card, debit card, and (others),” Lau said during a panel discussion at the Hong Kong fintech Week last month.

Using blockchain, the HKMA’s cross-border payment platform under the “depositary receipt corridor network” enables companies in both Hong Kong and Thailand to settle wholesale payment with each other directly, as the blockchain technology overcomes the shortcomings with the existing correspondent banking model, which involves multiple numbers of intermediaries that often results in payment delays.

Currently, the HKMA is also working with HSBC and ZhongAn Technologies International, which holds a virtual bank licence through its subsidiary and is the Hong Kong unit of mainland online-only insurtech player ZhongAn Online P&C Insurance, on the digital currency project.

Bank of Thailand has also been researching on its own central bank digital currency under its “Project Inthanon”, which also involves banks such as HSBC, Standard Chartered, and half a dozen Thai banks including Kasikorn Bank and Krungthai Bank.

Lau said the HKMA and Bank of Thailand will announce more details on their proof-of-concept study during the first quarter of 2020. The joint research project named “Project LionRock-Inthanon” was signed In November between the HKMA and the Bank of Thailand to study such cross-border payments, with an aim to facilitate HK dollar and Thai baht payment-versus-payment (PvP) among banks in Hong Kong and Thailand. It is an extension of a broader agreement signed in May.

Currently, Hong Kong interbank clearing, which is the interbank clearing and settlement joint venture owned by the HKMA and the Hong Kong Association of Banks, offers PvP on Thai baht but is limited only to US dollar exchange. Payment Vs payment is a foreign exchange settlement mechanism that ensures a transfer of one currency occurs only if a transfer of the other currency also takes place, which will be final and irrevocable.

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