back to article Hong Kong's central bank sees seven big issues to solve before a central bank digital currency can fly

The Hong Kong Monetary Authority (HKMA) has issued a technical perspective paper on central bank digital currencies (CBDCs), suggesting two viable designs but also finding seven issues that need to be nailed down before it would be comfortable implementing the "e-HKD". The paper [PDF] explores "potential architectures and …

  1. msobkow Silver badge

    Some people are going to see the "sinister" hand of "Chinese Communism" behind the security and enforcement requirements, but realistically, that is a laundry list of requirements for *any* nation state that doesn't want to *encourage* black market manipulation and fraud. Not that there aren't "pirates cove" nations out there that do just that...

  2. Anonymous Coward
    Anonymous Coward

    CBDC, more like CBG

    "Hong Kong’s central bank – hoped to address were cross-ledger synchronisation among participants in a CBDC, preventing an oversupply of digi-dollars, ensuring privacy, and allowing both wholesale and retail uses of an e-HKD"

    Here, the primary pusher of CBDC agenda, the ITU, listed the same issue list back in 2017 (as it did in 2014 also):

    https://www.itu.int/en/ITU-T/focusgroups/dfc/Pages/default.aspx

    I don't know what they're smoking there.

    It comes down to the currency. It will be USD or CNY. Once you've decided that, then the central bank controlling that currency sets every agenda related to that currency. You can decide all you like in the ITU, it won't matter.

    The dream of distributed currency is not real. Those servers run somewhere, in some country with software controlled by someone, under laws controlled by that nation. Whoever controls that software controls the world, and whoever controls the currency controls the software (because they set the regulation that their software must comply with).

    IMHO, I can see China moving into all aspects of banking. So I'm expecting them to open up offshore banking, connected to their Alibaba eCommerce and their stock markets, and their Unionpay and their digital currency. That will be denominated in CNY, which dictates the inflation, the privacy, even the sovereignty.

  3. Pascal Monett Silver badge

    "Do CBDCs improve existing business?"

    In a word : no.

    Businesses today have no technical issues paying their invoices or getting their customer's money. A so-called digital currency is not to help with that, so the entire exercise seems quite useless to me.

    On top of that, if you want to make me download a terabyte of blockchain data on my smartphone just so that I can bonk it on a payment terminal in order to get my croissant, you can fuck right off.

    1. vtcodger Silver badge

      Re: "Do CBDCs improve existing business?"

      On top of that, if you want to make me download a terabyte of blockchain data ...

      Ahem ... Possibly (one hopes -- Probably) not. Cryptocurrency is digital. But not all digital currency is crypto. A huge fraction of the world's "wealth" is already digital in that it consists mostly or entirely of bits stored in computers. Is it real? Yeah. In some sense at least. You can accumulate it, buy and sell it, use it to buy stuff, or borrow against it. And in many (most?) cases, it has at least some tangible value that will remain even if the trading value goes (temporarily?) to zero.

      A digital currency in the sense the HCB is talking about is digital assets that are backed somehow by a credible institution like a government or (a) major financial institution(s) that guarantees to try maintain some short term stability and to take the stuff off your hands and pay you something for it even if the ordinary markets are somehow paralyzed. It's also somewhat anonymous in that you can spend its tokens without proving ownership. Mostly, having the tokens makes them yours.

      Cryptocurrency has most of the trappings of a currency. But it lacks a credible guaranteer. Its "value" can and very likely will go to zero during the next major crash of the world's financial markets. A crash which, incidentally, seems to me more and more imminent as the volume of financial excess worldwide builds. I, for one, won't miss crypto. It's a significant waste of resource and a vehicle for way too much questionable activity.

      Blockchain is an interesting technology that genuinely seems to have no known useful application other than making counterfitting of cryptocurrency so difficult that it's easier to just follow the rules and create it "legitimately".

      What's at issue here, I think is what problems would have to be addressed should governments/central banks decide to go into an activity that looks to me like government backed debit/prepaid-credit cards. Why would they want to do that? Well, it might make some forms of nefarious/unpopular activity more difficult. But mostly, I doubt they will. I sure could be wrong.

      But getting back to the original issue. I doubt, they would need or want blockchain to lock down their credit/debit tokens.

      This is an issue for economists. I am not (and would not want to be) an economist. Economists are very clever people. And, unlike most "soft scientists" they are not afraid of math and sometimes manage not to make too much of a hash of its application. Nonetheless, it is clear that they are a VERY long way from actually understanding economics.

  4. lglethal Silver badge
    Stop

    I fail to see the point of digital currencies

    Lets just think about it a bit -Today, you walk into a coffee shop, touch your bank card to a EFTPOS reader (or your phone if your a fashionista), and walk out with your double shot latte. You have done all this with your regular account, handling regular currency, and guess what? You have done it all digitally! Shock horror! So why would you need a digital currency, when we pretty much already operate with digital currencies in our lives.

    The only use case I've really heard for digital currencies is for foreign exchange, but surely the better, simpler, cheapest solution is just to fix the sh&t show that is foreign exchange. Start implementing some world wide curbs on bank fees for such transactions, put limits on the speculators in order to stop them from causing massive and undeserved swings on currency markets, and improve access to foreign exchange services, so it's easier for new firms to enter the market and make it more competitive. A digital currency to fix this, is simply trying to build an expensive toll road around a congestion area rather than just fixing the area itself.

    If someone else can give me a proper use case for digital currencies (apart from being able to track every transaction within a country - the wet dream of every dictatorship!), then I'll happily listen, but I've yet to hear a compelling usecase that is not already met with current regular currency thats simply handled digitally.

    1. Def Silver badge

      Re: I fail to see the point of digital currencies

      Except that coffee shop transaction usually takes at least one working day to fully go through and incurs an up to 3% card processing fee (that the shop usually absorbs or subtly passes on to you).

      Similarly, as a company making and receiving international payments, there is considerable delay not to mention expense when making transfers via the SWIFT system (which is anything but swift these days).

      I think I agree that digital currencies managed by a bank don't really offer much over what they already offer - but perhaps without the exorbitant fees incurred sometimes, not to mention the rip off way banks remove money instantly from your account but drag their feet when it comes to paying money in - thus minimising the interest payments they have to make.

      1. lglethal Silver badge
        Go

        Re: I fail to see the point of digital currencies

        So you are agreeing with me that fixing the current system would make digital currencies useless, no?

        I would suggest that a day's delay from a shop transaction actually mirrors cash. In that, if you pay with cash, the coffee shop will only deposit that money in their bank account at the end of the working day anyway, so it kinda matches. But for international transactions, there really is no reason in this day and age except the banks greed and desire to use your cash to make even more interest before passing it on.

        The fees charged by the Banks, Visa and Mastercard are really taking the pi$$. They set them as high as they think they can get away with, without a) hurting sales, b) attracting greater regulation. Putting curbs on this would go some way to improving the international system massively. But it needs to be global, and I havent seen anyone trying to fight that fight.

        Finally, I really dont see why anyone believes a digital currency would solve any of these problems. The Banks want their profits. I wouldnt even give it an hour before they have developed "fees" that make digital currencies equally as expensive and profitable as the current system.

        1. Anonymous Coward
          Anonymous Coward

          Re: I fail to see the point of digital currencies

          Cash is actually worse. You need to take time to count it first, because there will inevitably be errors, and the content of the cashier won't match what the computer says. Then you need to take time to bring it to the bank.

          There are tips, you might say. Yes, cash makes it easier for tips. However, as I've seen how the tipping system in the US is just a made-up excuse to not pay employees properly, and is fundamentally unfair since tips are only earned by attending employees, not those working in the kitchen, I'm really not a fan of tips. I think the price of the coffee should include everything needed to provide a decent salary to the person who brings it to me as well as to the one that put it into the cup.

          But that's digressing :)

          1. DS999 Silver badge

            Re: I fail to see the point of digital currencies

            Cash is also worse because of crime. If a shop makes thousands of dollars in sales in cash they're a target for armed robbery, which is quite dangerous for everyone involved.

            If they take electric payments (of any type) then there is little reason for an armed robbery. That has to make insurance premiums lower, and reduce stress for employees in higher crime areas.

            Obviously digital currency provides zero advantage over credit/debit payments here, this is just an advantage for everything else over cash.

      2. Anonymous Coward
        Anonymous Coward

        Re: I fail to see the point of digital currencies

        Pretty much agree.

        In Thailand, we can pay people with a bank transfer and its done instantly, and if its the same bank its *free* otherwise very cheap. It's common to pay people with bank transfers. When I don't have small change, I do a bank transfer, I've done it many times with the little old lady that cooks my dinner.

        It's pier to pier.

        Everyone has a bank account so transfers are pier to pier, and the economy in Thailand is pier to pier, anyone sets up a business, they get the money instantaneously, not months later, they can spend it immediately. So the capital barrier to entry for businesses is low and setup is easy and available to almost everyone.

        Credit/Debit cards obviously restrict who can receive the money, limiting the economy to a few players. Which is a very bad thing obviously. Credit cards don't give free credit, they withhold payment from the merchants for months. You "pay" the merchant by the card, but the merchant waits and waits to *eventually* gets *some* of the money you paid them.

        SWIFT etc. again, the main problem is currency exchange. Imagine you both had THB accounts with say Siam Commercial Bank, you'd have the same instantaneous free bank transfers that Thailand enjoys. You could be anywhere in the world making that transaction and it would still be instantaneous. Elminate the currency exchange problem and the banking is trivial to perform, but in this example, you'd receive THB and that's not very useful unless you buy a lot of car parts and hot sauce!

        Obviously you need a currency, that you can use everyday to buy the supplies you need, and THB, sadly isn't it. I suspect CNY will end up winning there, most business ultimately buy Chinese made crap, it ultimatly is their base currency.

        The crypto crowd want to substitute some magic token that's used nowhere and mined in their basements. Ridiculous, delusional. They cannot even stick to one crypto token themselves yet expect others to buy in to their fantasy(-ies).

        The banking-blockchain crowd want to sell their blockchain crap, and no doubt data mining of the blockchain itself which would be a wealth of private transaction data! That's where their agenda is, I think: surveillance and transactional data mining tools.

        There clearly is a need for better banking, and all these little crappy exchange mechanisms show that need, but none of them fit the bill. Why, in this day and age, does Western Union still exist? Why is Paypal still in business? These things shouldn't exist if the West's banking system worked as it should.

        1. 2+2=5 Silver badge
          Joke

          Re: I fail to see the point of digital currencies

          > It's pier to pier.

          What if you don't live near the sea?

      3. jmch Silver badge
        Facepalm

        Re: I fail to see the point of digital currencies

        " thus minimising the interest payments they have to make"

        Interest? You're having a laugh, right?

        1. Def Silver badge

          Re: I fail to see the point of digital currencies

          I still receive interest on my accounts in Norway. Admittedly not much, but that's as much a statement about my account balances as it is about the economy as whole these days.

          That particular point works both ways though. When I pay my mortgage every month the money leaves my account instantaneously, but doesn't get deducted from my mortgage balance for at least 12 hours and much longer on weekends and public holidays. So I have (at least) 12 hours less interest paid on my account's balance, but an additional 12 hours of interest accrued on my mortgage.

          Banking is mostly just a massive scam.

    2. jmch Silver badge

      Re: I fail to see the point of digital currencies

      The issues are to do with big banks and gigantic quasi-monopolistic credit card companies acting as gatekeepers and therefore charging far too much, because there isn't any alternative.

      - Why, if I make an electronic international transfer, does it not leave my bank until the evening I make the order, and not show in the receiving account at least 1 day after?

      - Why are credit card companies charging merchants 3-5% per transaction? To be fair, at least in this case they have a robust, well-functioning quasi-instantaneous infrastructure. But there is no flexibility for the merchant to pay a flat per-transaction fee or a %age that is capped for high-value transactions. After all the load on the card network is the same whether the transaction is $1 or $10,000

      - Why are currency conversion fees on electronic transfers a thing? I can understand for physical notes there are stocking costs etc, but for electronic it is literally adding a single currency-pair rate lookup and a single multiplication calculation to the transaction. The coding to do so is quasi-trivial and one-off, there is no justification to do so. Ditto with the rates. Not saying institutions shouldn't make money for services provided, just that the monopolistic nature of interbank systems makes the fees horrendously high.

      Proper digital transactions is more than adding a digital layer over the same procedures that have been done manually for centuries or using overnight batch jobs for decades.

      1. DS999 Silver badge

        Re: I fail to see the point of digital currencies

        The reason for the 3% fees, currency conversion charges and stuff is because there are basically only two card providers in the world, unless you want to count Amex and Discover. If there was more competition, that competition would drive down the fees - business owners would support alphacard or betabucks if they had 1% fees instead of 3%, by offering people for example "free small soda if you pay for your meal with alphacard!" and Visa/Mastercard would be forced to lower their fees or slowly become like Amex marginalized into a little niche in a field they once dominated.

        A digital currency would be a monopoly if it is central bank controlled, and while theoretically they could decide to make transactions free or nearly so I'm sure the Visa/Mastercard lobby would spend many millions to prevent that. So I think we'd still end up with similar fees, just a difference in where they go (i.e. to the treasury instead of shareholders)

        A digital currency not controlled by a central bank is not a realistic possibility because you'll never get consumer acceptance for something the general public sees as akin to gambling - the breathless news reports about the wild gains and big losses from bitcoin's daily/weekly/monthly movements have made public acceptance of this almost impossible. Unless there's a system that can convert dollars or pounds in an account somewhere to xxxcoin at time of purchase, few would use it. And if you do that, why not skip a step and pay directly in dollars or pounds?

        Sorry cryptoheads, your dream of a totally decentralized currency gaining widespread acceptance for payment is just not realistic, and never will be.

  5. Mike 137 Silver badge

    Clarification needed

    Now that all financial transactions other than cash payments are already electronic, what's the real difference between a dollar and an e-dollar?

    1. Anonymous Coward
      Anonymous Coward

      Re: Clarification needed

      AFAICT, it boils down to the ability to exchange e-dollars directly between individuals, without needing a bank or some sort of payment network backing up the transaction.

      Note that crapcoins don't allow for that either, as they also need their blockchain network to register the transaction before it's fully validated.

  6. steelpillow Silver badge
    WTF?

    So what's different?

    Most of those Seven Deadly Sins Features apply to any currency dealings online. What makes purely digital currencies different?

    The only thing I can think of is the issuing authority and their chosen procedures. National currencies with smart gnomes in charge retain their value, those with short-sighted spendthrifts suffer spiralling inflation. None of the other six bogeys are stopping the central banks from creaming off more than they get defrauded of.

    The current generation of digital-only currencies solve it through computationally-intensive pursuit of a limited supply. How hard can it be to come up with a more sophisticated and less environmentally damaging supply algorithm? Answers (and registration keys for your new currency) on a postcard, please.

  7. xyz123

    Issue 8 - Xi uses the bank as his personal slush fund, forcing them to cover up missing billions or basically have their internal organs removed.

  8. nicboyde

    An Eighth Requirement

    Freedom from trace, permission, supervision or oversight.

    Sometimes you want to pay someone and no one else to know. Once upon a time one could rely on the discretion of one’s bankers to pay the rent on the little flat in Paddington that the wife doesn’t know about. But no more. All sorts of types can get court orders and the jobsworths at the banks are supine.

    So cash.

    If a digital currency cannot offer this kind of freedom, it won’t be used. It deserves its own status as a problem to be addressed, or cash or barter will remain.

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