Hong Kong’s and Thailand’s financial authorities explore payments recorded on a blockchain. The development focuses on optimizing cross-border transfers and payments between banks.
The financial authorities of Hong Kong and Thailand are prepared to launch a two-tier digital token, as part of the process of creating a prototype of cross-border transfer of funds between the two economies using FinTech.
According to the Hong Kong Monetary Authority (HKMA), the first stage of the prototype, known as the LionRock-Inthanon Project, implies issuing a token through the Hong Kong banks involved in the pilot program. The second stage implies that banks distribute tokens to corporate customers to arrange wholesale payments with other banks or companies.
The two-tier system, comparable to the one developed by the People’s Bank of China, is a step in the LionRock-Inthanon project, which was established last November based on collaboration between the HKMA and the Bank of Thailand. The use of a blockchain-backed token is expected to accelerate the settlement of currencies between the two economies, from USD 19.6 billion in bilateral stores last year, giving companies and banks more competitive exchange rates for the Hong Kong dollar and the Thai baht.
HKMA Executive Director Edmond Lau explained that this system would also be used differently from the cryptocurrency being developed in China, which focuses on replacing coins and banknotes in circulation to support retail transactions. He said that the LionRock project focuses on optimizing cross-border transfers and payments between banks and companies.
During a panel discussion on financial technology held in Hong Kong last November, Lau commented that the possibility of issuing a central bank cryptocurrency for retail purposes in Hong Kong is limited, since they have many retail payment services, including credit cards and debit cards, among others.
Lau said that the use of blockchain technology allows the HKMA cross-border payment platform, through the “depositary receipt route network,” to help companies in both Hong Kong and Thailand settle wholesale payments between them as the properties of a blockchain overcome the limitations of the banking model, which involves multiple numbers of intermediaries, thus resulting in payment delays.
The executive added that the Bank of Thailand has also been researching its own cryptocurrency through the Inthanon Project, which includes banks such as HSBC, Standard Chartered, and several other Thai banks such as Kasikorn Bank and Krungthai Bank.
Lau said that HKMA and the Bank of Thailand will announce more details about the test results during the first quarter of 2020.
The LionRock-Inthanon Project, which was signed last November between HKMA and the Bank of Thailand, is aimed at studying such cross-border payments, seeking to facilitate transactions in HK dollars and Thai baht between banks in Hong Kong and Thailand. This project is an extension of a broad agreement signed last May.
Currently, Hong Kong Interbank Clearing, which is an interbank compensation fund owned by the HKMA and the Hong Kong Banking Association, offers a payment-versus-payment settlement in Baht, but is limited only to the exchange of US dollars. This exchange mechanism ensures that the transfer of one currency only occurs simultaneously with one of the other currencies, which will be irrevocable.
By Willmen Blanco
