China's central bank has put its virtual yuan through a new set of paces by allowing select Hong Kong residents to use it to make payments across borders, state media reported Thursday.
Under a one-day pilot program sponsored by the People's Bank of China, Hong Kong residents could use the central bank-developed digital currency to pay for things in the neighboring city of Shenzhen, across the border between the special administrative region and South China's Guangdong Province, according to the state-run Shenzhen Special Zone Daily newspaper.
The trial, which took place on Tuesday, highlights the PBOC's interest in expanding the testing of its digital currency, which has so far been limited to retail payments on the Chinese mainland.
In early December, the Hong Kong Monetary Authority, or HKMA, Hong Kong's de facto central bank, announced that it was preparing for "technical pilot testing" of the digital yuan for cross-border payments in collaboration with the PBOC.
Because the yuan is already widely used in Hong Kong, the digital version of the currency, designed as a replacement for cash, will bring greater convenience to Hong Kong and Chinese mainland tourists by offering an additional payment option to those who need to make cross-border purchases, HKMA Chief Executive Eddie Yue said in an article announcing the collaboration.
In 2019, Hong Kong remained the largest offshore market for the yuan, settling 44.9% of cross-border yuan payments and receipts, equal to 8.83 trillion yuan ($1.3 trillion), according to the PBOC's latest annual RMB Internationalization Report, released in August. Hong Kong's settlement figure greatly exceeds runner-up Singapore's 10.3% share.
Hong Kong residents who regularly travel to Shenzhen can register a digital wallet with a daily transaction limit of up to 50,000 yuan, after verifying their identity with their mainland travel permit, according to the newspaper's report.
In addition, Hongkongers who occasionally visit Shenzhen and do not have a mainland travel permit can use their Hong Kong phone number to open a digital wallet that allows anonymous payments up to a smaller total, the report says.
The pilot program also chimes with China's recently published five-year plan, a policy blueprint for the country's economic and social development for 2021 to 2025. The plan includes a proposal to "steadily promote research and development of the digital currency."
China is accelerating the rollout of its virtual yuan. Since October, several cities, including Shenzhen, have used the digital currency to provide millions of yuan in coupons to local residents as part of ongoing pilot programs.
Over the next few years, policymakers plan to expand testing of the digital yuan in several regions, including the Guangdong-Hong Kong-Macao Greater Bay Area, according to a plan released in August by the Ministry of Commerce.
The PBOC's digital currency research institute has also joined the HKMA's digital currency research project to facilitate cross-border payments at the wholesale level and solve problems associated with cross-border fund transfers, including inefficiencies, high costs and complex regulatory compliance.
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Caixinglobal.com is the English-language online news portal of Chinese financial and business news media group Caixin. Nikkei agreed with the company to exchange articles in English.