The Hong Kong Monetary Authority (HKMA) has published a white paper that explores potential technical and design options for issuing and distributing retail central bank digital currencies (CBDCs) and proposes a two-tier system as “one possible design” for a digital HK dollar or e-HKD.

The 50-page e-HKD: A Technical Perspective white paper represents “the first step of our technical exploration for the e-HKD” and forms part of a wider study into both technical and policy considerations that “aims to come up with an initial view by the middle of next year,” the HKMA says.

The two-tier system proposed in the white paper consists of “an interbank layer” or wholesale CBDC issuance and redemption system accessible to the central bank and intermediary commercial banks and payment solution providers and “a wallet layer” or retail CBDC (rCBDC) distribution and circulation system that “could only be accessed by intermediaries and an ecosystem of users in the general public equipped with mobile wallet applications”.

Such a system “is most notable for its ability to flexibly and efficiently instantiate different two-tier distribution models of rCBDC while achieving breakthroughs in privacy-preserving transaction traceability and cross-ledger synchronisation of decoupled ledgers,” the white paper says.

“It should be noted that the proposed architecture is not a blueprint for e-HKD, nor does it approach a decision on the CBDC distribution models chosen for implementing e-HKD,” the HKMA adds.

“Rather, it should be seen as the outcome of initial research as well as a basis for initiating dialogues with central banks, the academia, and the wider fintech community to collaboratively explore solutions for rCBDC.”

The HKMA originally unveiled its plans to explore the use cases, benefits and risks of developing an e-HKD in June. 

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