Hong Kong to Test CBDC for Cross-Chain Transactions Using Chainlink

Hong Kong will test the use of its central bank digital currency (CBDC) for cross-chain payments through Chainlink’s Cross-Chain Interoperability Protocol (CCIP), with participation from Visa, ANZ, Fidelity, and ChinaAMC.

According to a report by Visa, one of the participants in the second phase of the digital Hong Kong dollar (e-HKD) pilot project, the Hong Kong Monetary Authority (HKMA) will explore the potential of using CBDC for cross-border cross-chain payments and interbank transfers.

Within the e-HKD project, the CBDC will be tested for payments and settlements across different blockchains, as well as for interaction with various digital assets. Chainlink, a leading oracle provider whose CCIP will ensure secure transmission of data and value between public and permissioned blockchains, will be HKMA’s main partner in this project.

The CCIP will be used to integrate DASChain, the permissioned blockchain of the Australian financial group ANZ Bank, with the public Ethereum blockchain. The process involves several stages:

1. Australian investors deposit AUD and receive the stablecoin A$DC issued by ANZ.
2. ANZ issues a wrapped version of e-HKD on the DASChain network.
3. Chainlink’s CCIP securely transfers wrapped e-HKD tokens to the Ethereum blockchain.
4. Investors can then use the asset to purchase shares of tokenized funds issued by Fidelity International or China Asset Management (Hong Kong).

Thanks to Chainlink’s technology, all transactions will undergo mandatory KYC/AML checks through CCIP’s identification modules. This approach aims to test the feasibility of ensuring secure and efficient exchange of tokenized assets across different blockchains without losing control or regulatory compliance by financial institutions.

Another goal of the pilot is to eliminate counterparty risks through atomic settlements. According to the report, in 2022 currency market transactions totaling $2.2 trillion were exposed to risks stemming from imperfect settlement infrastructure. The new model proposes simultaneous exchange of assets and funds between networks, theoretically mitigating such risks.

Additionally, the project participants will study how the choice of tokenization standards affects compatibility and regulatory compliance. Two standards will be used in the initiative: ERC-20 for e-HKD and ERC-3643 for tokenized deposits.

Hong Kong authorities are actively expanding the CBDC pilot project launched in 2021. In 2023, pilot programs for retail and wholesale CBDCs were launched. In 2024, HKMA began exploring tokenization and tested cross-border payments in e-HKD. A total of 21 financial institutions are participating in the second phase of Hong Kong’s digital currency trials.