Testing of China’s DCEP/digital yuan will be conducted on Hong Kong, and then on other provinces of its mainland.

Hong Kong residents have always used banknotes in transactions. This is solidly backed by the government, supposedly making it more stable than anything else.

 Counting from 1846, or over four decades later, the stability of the local currency is shaken and tested with a new kind of money.

Will Hong Kong Go Full Digital Like China?

With several countries announcing their CBDCs, it seems that going digital is about to become the new norm. So, whether or not Hong Kong would take the plunge could define a new level of rivalry.

A digital trial of the DCEP will take place starting from Hong Kong, and then to provinces in China like Macau, Shanghai, Tianjin, Beijing, and Hebei.

There are no clear timelines set. However, once the Yuan tokens are made available in Chinese e-wallets like Alipay, it’s bound to be spent in Hong Kong as local users haul the tokens back to its source, mainland China.

The digital yuan is bound to a powerful cash prototype that has adopted certain elements of blockchain technology, although it is not built on a blockchain system as some people think. Furthermore, digital RMB is also designed to be centralized.

The test will run in Hong Kong mainly since its currency is hedged on the US dollar. This is a maneuver of China and Hong Kong to combat hyperinflation.

US and China Standoff – Trouble in Paradise?

China is now banking on the digital yuan at this stage of the pandemic. This began from the moment U.S. and China had a standoff in line with heated confrontations involving intellectual and trade property. The Asian financial center is in the middle of the arguments.

The Trump administration had placed sanctions against some Chinese officials which seemed to be taking effect as Carrie Lam, Hong Kong Chief Executive, is having difficulty using her credit cards. 

The Hong Kong police chief then decided to transfer his mortgage from HSBC Holdings Plc to Bank of China Ltd (Hong Kong). Accordingly, he also was in the U.S. list of specially designated nationals.

This financial move said to be Lam’s “personal consumer choice”.

Digital Yuan – Politics of Money

While this may not soften the crash, it can prepare Hong Kong once it gradually decides to let go of the dollar in the future. The digital yuan isn’t a fail-safe pad for the state, however. But it may be able to bypass the dollar and shoot global trajectories if the residents shift to China’s national e-currency.

Once Hong Kong residents warm up to the idea, this will help scale the digital yuan transactions to an international domain.

It may not offer users the same anonymity as cash, which may be another point of hesitancy. And overall, China’s ambitious quest to go digital may be a costly venture.

If things go well as planned, Hong Kong could become a lending or insurance hub for hedging digital assets. No one can truly predict how this digital experiment will go.

But, with everything going on, this could boldly state another politics of money.