HKMA Digital Currency (e-HKD) Development: Retail and Wholesale Applications in Hong Kong

On 18 March 2025, the Hong Kong Monetary Authority (HKMA) published its updated policy roadmap for the e-HKD project, now formally renamed the “Digital Hong Kong Dollar” (e-HKD) development programme. This announcement marks a decisive shift from exploratory pilot studies to structured, phased implementation targeting both retail and wholesale applications. The HKMA confirmed that a legislative proposal for a legal tender framework will be tabled in the Legislative Council in the 2025-2026 session. For financial institutions, compliance officers, and跨境券商 (cross-border brokerages) operating in or entering the Hong Kong market, this timeline creates immediate operational obligations. The e-HKD is no longer a theoretical concept; it is a regulatory requirement that will reshape payment infrastructure, settlement processes, and anti-money laundering (AML) compliance systems. Firms must now assess their technological readiness, update their licensing applications where relevant, and prepare for the HKMA’s supervisory expectations on digital currency integration. This article outlines the current regulatory position, the distinct retail and wholesale use cases, and the concrete steps licensees should take.

The HKMA’s Digital Currency Mandate and Legal Framework

Legislative Basis Under the Banking Ordinance (Cap. 155)

The HKMA derives its authority to issue and regulate a digital currency primarily from the Banking Ordinance (Cap. 155) and the Exchange Fund Ordinance (Cap. 66) . The 2025 policy paper explicitly states that the e-HKD will be legal tender, backed by the Exchange Fund, and will not be a separate cryptocurrency or stablecoin. The HKMA has confirmed that the e-HKD will be a central bank digital currency (CBDC), not a privately issued digital asset.

The legislative proposal expected in 2025-2026 will amend the Legal Tender Notes Issue Ordinance (Cap. 65) to include the e-HKD as a form of legal tender. This amendment will clarify that all merchants, banks, and licensed financial institutions must accept e-HKD for payment of debts, subject to the same rules as physical cash. For licensed institutions, this creates a statutory obligation to integrate e-HKD acceptance into their systems.

The Two-Tier Distribution Model

The HKMA has adopted a two-tier distribution model for the retail e-HKD. Under this model:

• Tier 1 (HKMA): The HKMA issues the e-HKD to licensed banks.
• Tier 2 (Licensed Banks): Licensed banks distribute the e-HKD to end users, including individuals and businesses.

This structure mirrors the existing cash distribution system. The Banking Ordinance (Cap. 155) requires any institution distributing e-HKD to hold a valid banking licence. Non-bank financial institutions, including securities brokers and stored value facility (SVF) licensees, may participate only through partnership with a licensed bank. The HKMA’s 2025 consultation paper confirms that the Payment Systems and Stored Value Facilities Ordinance (Cap. 584) will be amended to bring e-HKD wallets under the SVF regulatory regime if they exceed the HK$8,000 threshold.

The Project Sandbox and Pilot Phases

The HKMA launched the e-HKD pilot programme in November 2022, with Phase 1 involving 16 firms testing retail use cases. Phase 2, announced in March 2025, expands to wholesale applications and cross-border payments. The HKMA’s 2024 Annual Report states that 24 firms are now participating in Phase 2, including major banks, payment processors, and technology providers.

The sandbox allows participants to test e-HKD functionality in a controlled environment without full regulatory compliance. However, the HKMA has made clear that sandbox participation does not constitute a licence or exemption from licensing requirements under the Securities and Futures Ordinance (Cap. 571) or the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) .

Retail Applications: Payments, Wallets, and Merchant Integration

Programmable Payments and Smart Contracts

Retail e-HKD is designed primarily for peer-to-peer and merchant payments. The HKMA’s 2025 policy paper emphasises programmability — the ability to attach conditions to e-HKD transactions through smart contracts. For example, a government subsidy payment could be programmed to expire after 90 days or to be spendable only at designated merchants.

For licensed banks and SVF operators, this programmability introduces compliance obligations under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) . Condition-based transactions must still satisfy customer due diligence (CDD) requirements. The HKMA has stated that programmable e-HKD will not exempt institutions from transaction monitoring obligations.

Merchant Integration and Licensing Implications

Merchants accepting e-HKD must ensure compliance with the Payment Systems and Stored Value Facilities Ordinance (Cap. 584) . If a merchant’s e-HKD wallet holds more than HK$8,000 at any time, the merchant must apply for an SVF licence from the HKMA. This threshold applies cumulatively across all e-HKD wallets operated by the same entity.

For跨境券商 (cross-border brokerages) that accept e-HKD for securities settlement, the Securities and Futures Ordinance (Cap. 571) will apply. The SFC’s Code of Conduct (paragraph 12.1) requires that client assets be held in trust accounts. E-HKD held in a brokerage’s wallet on behalf of clients will be treated as client assets, requiring segregation and regular reconciliation.

The e-HKD Wallet Structure

The HKMA has proposed three wallet tiers:

• Tier 1 (Anonymous): Low-value wallets with a maximum balance of HK$10,000 and a daily transaction limit of HK$5,000. No identity verification required.
• Tier 2 (Basic): Wallets with a maximum balance of HK$100,000. Requires basic identity verification (name, date of birth, and Hong Kong identity card number).
• Tier 3 (Full): No balance or transaction limits. Requires full CDD under Cap. 615, including proof of address and source of funds.

Licensed institutions must implement these tier structures by Q3 2026, according to the HKMA’s implementation timeline published in March 2025.

Wholesale Applications: Interbank Settlement and Cross-Border Payments

The Project mBridge and Wholesale CBDC

The HKMA is a founding member of Project mBridge, a multi-CBDC platform for cross-border payments involving the central banks of China, Thailand, the United Arab Emirates, and Hong Kong. The 2024 mBridge Minimum Viable Product (MVP) report confirms that the platform has processed over HK$3.4 billion in real transactions since its launch in 2022.

For licensed banks, participation in mBridge requires compliance with the Banking Ordinance (Cap. 155) and the Exchange Fund Ordinance (Cap. 66) . Cross-border e-HKD transactions must adhere to the HKMA’s Supervisory Policy Manual (SPM) Module CA-G-1 on foreign exchange risk, and the SPM Module IC-1 on interest rate risk.

Settlement Finality and Real-Time Gross Settlement (RTGS)

The HKMA has integrated e-HKD into its existing Real-Time Gross Settlement (RTGS) system, which handles over HK$12 trillion in daily transactions. The 2025 policy paper confirms that e-HKD will settle on a delivery-versus-payment (DvP) basis for securities transactions and on a payment-versus-payment (PvP) basis for foreign exchange transactions.

For licensed institutions, the RTGS integration means that e-HKD transfers will be final and irrevocable once processed. This settlement finality is critical for securities settlement under the Securities and Futures (Clearing Houses) Ordinance (Cap. 571) . Institutions must update their operational risk frameworks to account for the reduced counterparty risk and increased settlement speed.

Cross-Border Payments and AML/CFT Obligations

Cross-border e-HKD payments must comply with the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) . The HKMA’s Guideline on AML/CFT (revised January 2025) requires that all cross-border wire transfers of HK$8,000 or more include the originator’s full name, account number, and address.

For跨境券商 (cross-border brokerages) processing e-HKD for client securities settlement, the Securities and Futures Ordinance (Cap. 571) requires that all cross-border transactions be reported to the SFC under the Code of Conduct (paragraph 16.2) if they exceed HK$500,000.

Licensing and Compliance Obligations for Financial Institutions

Applying for e-HKD Distribution Licences

Any institution wishing to distribute e-HKD must hold a valid banking licence under the Banking Ordinance (Cap. 155) . Non-bank institutions, including securities brokers and payment service providers, must partner with a licensed bank. The HKMA’s 2025 Consultation Paper on e-HKD Licensing confirms that the application process mirrors the existing banking licence application under Section 16 of the Banking Ordinance.

The application must include:

• A detailed business plan for e-HKD distribution.
• An AML/CFT compliance programme specific to e-HKD transactions.
• A technology risk assessment addressing cybersecurity and data privacy.
• A capital adequacy plan demonstrating compliance with the Banking (Capital) Rules (Cap. 155L) .

Impact on Existing SFC and HKMA Licence Holders

Existing licence holders under the Securities and Futures Ordinance (Cap. 571) must assess whether their e-HKD activities trigger additional licensing requirements. The SFC’s 2025 Guidance Note on Digital Assets states that e-HKD held for trading or investment purposes will be treated as a “securities” or “futures contract” under the ordinance.

For Type 1 (dealing in securities) and Type 2 (dealing in futures contracts) licence holders, e-HKD transactions must comply with the Code of Conduct and the Financial Resources Rules (Cap. 571N) . The SFC requires that all digital asset transactions be recorded and reported under the Securities and Futures (Reporting) Rules (Cap. 571) .

The Compliance Timeline: Key Deadlines

The HKMA has published the following implementation deadlines:

• Q3 2025: Legislative proposal tabled in LegCo.
• Q1 2026: Enactment of amendments to Cap. 65 and Cap. 584.
• Q3 2026: Mandatory e-HKD acceptance for all licensed banks.
• Q1 2027: Full e-HKD integration into RTGS system.

Licensed institutions must complete their technology upgrades and compliance programme updates by Q2 2026. The HKMA has indicated that it will conduct thematic inspections on e-HKD readiness starting Q3 2026.

Actionable Takeaways

1. Licensed banks must begin e-HKD technology integration immediately — the Q3 2026 mandatory acceptance deadline is fixed, and the HKMA has confirmed it will not grant extensions.
2. Non-bank financial institutions must secure bank partnerships for e-HKD distribution — the two-tier model prohibits direct distribution without a banking licence.
3. AML/CFT compliance programmes must be updated to cover programmable e-HKD transactions — the Cap. 615 obligations apply regardless of the transaction’s automated nature.
4. Cross-border brokerages must treat e-HKD client holdings as regulated assets — segregation and reconciliation requirements under Cap. 571 apply from the date of e-HKD launch.
5. All institutions should monitor the LegCo legislative process in Q3 2025 — the proposed amendments to Cap. 65 and Cap. 584 will contain specific compliance obligations that may differ from the HKMA’s current policy papers.

本文不構成法律建議。涉及個人案件請諮詢持牌律師。 / This does not constitute legal advice. Consult a solicitor for your specific case.