French and Hong Kong regulators sign memorandum of cooperation to jointly explore the future of wholesale CBDC and tokenization

1. Cooperation Overview

Banque de France (BDF) and the Hong Kong Monetary Authority (HKMA) announce a collaboration to wholesale central bank digital Research and development of currency (CBDC) and tokenization of financial assets. The collaboration is seen as an important milestone in financial innovation and enhanced digital currency interoperability.

2. The role of the Hong Kong Monetary Authority

HKMA, as a non-Eurosystem central bank institution joining the European Central Bank’s Eurosystem exploration work, marks its important progress on the international financial stage. This step highlights HKMA’s leadership in promoting financial innovation and digital currencies.

3. Collaboration to promote CBDC interoperability

• Through the Memorandum of Understanding (MoU), BDF and HKMA work together to promote research on wholesale CBDC and tokenization technologies.
• The collaboration will also focus on interoperability between Singapore BDF’s DL3S infrastructure and HKMA’s Project Ensemble Sandbox.
• This collaboration aims to improve the efficiency of settlement of international transactions and enhance interoperability between financial market infrastructures in different jurisdictions.

4. Global interest in CBDC

• Global interest in CBDC is growing rapidly, with 94% of central banks actively exploring the potential of digital currencies.
• The Bank for International Settlements (BIS) and the International Monetary Fund (IMF) are actively promoting and supporting the development of CBDC.

5. Tokenization Initiatives

• BIS supports tokenization initiatives, which are the conversion of physical assets into digital tokens on the blockchain.
• BIS’s tokenization project focuses on exploring the digitization of financial instruments and the application of CBDC in privacy protection.

6. Wholesale and retail CBDC

• Currently, most central banks tend to develop wholesale CBDC. This type of CBDC is mainly suitable for large-value transactions between financial institutions.
• Retail CBDC is available to the general public, but has not yet become mainstream.
• Regulatory agencies believe that wholesale CBDC is less likely to cause risks to the stability of the financial system than retail CBDC.

7. Conclusion

The cooperation between BDF and HKMA is a microcosm of global financial regulators exploring the potential of digital currency and tokenization technology. With rising global interest in CBDC and support from international organizations, the next few years are expected to be a critical period for the development of these innovative technologies.

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