Hong Kong unveils prototype two-tier CBDC ecosystem for contactless payments in stores

DIGITAL WALLET: Users will be able to view wallet balances and spending history on their smartphone:

The Hong Kong Monetary Authority (HKMA) has unveiled a prototype two-tier central bank digital currency (CBDC) ecosystem that will enable end users to store digital HK dollars as either intermediated CBDC tokens or CBDC-backed stablecoins in a digital wallet and use them to carry out retail transactions.

The platform developed by the HKMA’s Project Aurum incorporates both a wholesale interbank system for the issuance of digital HK dollars to commercial banks and a retail e-wallet system for circulating the CBDC among end users, and is the first such project globally to explore the use of stablecoins within a CBDC infrastructure.

The wholesale interbank system will be built on blockchain technology, while the retail e-wallet system will be server based and operated by participating banks, according to the HKMA.

“Each bank, regardless of whether it is an issuing bank or non-issuing bank, implements and operates its own retail e-wallet system. Its customers, ie the end-users, interact with the bank server through this e-wallet system,” the HKMA explains in its project report for the Bank for International Settlements Innovation Hub.

“The customer conducts all e-wallet activities, eg payment, through his/her bank.”

The retail e-wallet system will also enable an end-user to “withdraw fiat from his/her savings account and deposit the equivalent amount into his/her e-wallet account in the form of the CBDC-token or the CBDC-backed stablecoin and vice versa”, to make and receive payments in the e-wallet currency and “to process a request to trace the UTXO [unspent transaction output] history of the e-wallet currency”.


“Project Aurum was initiated to develop a working prototype that would serve as a public good for the central banking community,” the HKMA says.

“Adhering to the principles of safety, flexibility and privacy, Project Aurum has developed a two-tier rCBDC system comprising a wholesale interbank system and an e-wallet system, in which the validator mechanism helps prevent over-issuance and double-spending.

“Project Aurum has made a number of ground-breaking achievements. First, it has implemented two types of rCBDC architecture, intermediated CBDC and CBDC-backed stablecoins after considering trade-offs among different CBDC architectures.

“Second, the use of UTXO enables the traceability of the tokens to the backing assets, therefore providing safety to end-users in the case of commercial bank bankruptcy.

“Third, the two-tier architecture provides additional privacy for the end-users as the interbank system does not record any personal data.

“Lastly, the decoupling of the wholesale and e-wallet systems strengthens the cyber resilience based on the principle of privilege separation and network segmentation, by minimising the interactions between retail and wholesale activities.”

The HKMA announced plans to explore developing a digital HK dollar in June 2021 and laid out technical design options for the proposed CBDC in November 2021.

Hong Kong unveils prototype two-tier CBDC ecosystem for contactless payments in stores was written by Tom Phillips and published by NFCW.