After crypto’s dramatic fall, digital currencies take slow road to credibility in Asia-Pacific

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Trams in Hong Kong in 2017. PHOTO: Andy Leung from Pixabay

In an announcement that was picked up by a handful of financial news websites, Mastercard said it had completed a trial of the e-HKD digital currency in Hong Kong that enabled Web3 transactions.

The pilot showed that seamless funding and settlement in and out of a Web3 marketplace was possible via a retail central bank digital currency (CBDC), such as e-HKD, in future, according to the world’s second largest payments network.

Mastercard was one of 16 organisations that took part in a pilot programme set up by the Hong Kong Monetary Authority six months ago.

In its trial, Mastercard simulated a hypothetical e-HKD, from minting and distribution to spend and redemption within its sandbox environment. It also managed to ensure the quality and successful delivery of a physical item purchased using smart contract functionality, which reduces risk for all parties involved in the transaction.

“What’s exciting about this pilot is that it demonstrated the ability to use digital currencies across multiple platforms, as well as the potential to utilise existing commercial bank rails to drive overall adoption,” said Sandeep Malhotra, Mastercard’s executive vice president for products and innovation in Asia-Pacific.

While the trial showed how digital currency could be used in actual payments in future, it appears to have garnered little of the excitement that had followed every decentralised finance development a year or two ago.

Yet, in a week when the founder of failed crypto currency exchange, FTX, was found guilty of fraud, those plugging away to develop digital currencies are certain they would make their way into the mainstream once they gain stability and credibility after trials such as those in Hong Kong.

For Mastercard, its latest trial showed that its multi-token network could be used to solve real-world issues, such as buying a physical luxury item that comes with an NFT that is essentially a certificate of authenticity.

Earlier this year, it had also taken part in a pilot project in Australia on interoperable CBDC for trusted Web3 commerce. The aim was to enable the use of the eAUD digital currency on public blockchains.

To be sure, several pilot trials have been running in various markets in the region, including in Singapore, with its Project Ubin pilot started back in 2016. Countries such as India and China have also tested out digital versions of their fiat currency.

In Singapore, tests have centred on the use of distributed ledger technology – such as blockchain – for payment clearing and settlement and for cross-border payments using CBDCs.

One similarity in such trials is the search for stability and long-term viability. Rather than disrupting the existing financial system, they seek a digital currency that complements or serves as a digital equivalent of existing fiat currencies.

“The bursting of the cryptocurrency bubble in the past year seems to have driven more activity and interest towards establishing value stability within Web3,” said Ceridwen Choo, managing director of payments and innovation at DCS Card Centre.

One development was the emergence of “real-world assets” which basically refer to the tokenisation of assets in the physical world and bringing them on chain, she told Deeptech Times.

DCS, formerly known as Diners Club Singapore, now offers payment solutions for connecting Web2 and Web3, on top of issuing credit and charge cards, which it has been known for since the 1970s.

Last month, it started issuing DCS Tokens, each of which is equivalent in payment value to US$1. Used in conjunction with its cards, the tokens can be redeemed for instant card spend limits via an app.

While these developments may not be as exciting as, say, El Salvador declaring Bitcoin as an official currency alongside the US dollar back in the heady days of 2021, they also point to the steady progress needed for a more stable form of digital currency.

CBDCs, which are essentially digital versions of fiat currency linked to central banks, may not realise the decentralisation and zero-middlemen ideal of cryptocurrency proponents. However, they still take advantage of blockchain technology.

As the Asian Development Bank notes in a report from 2022, “the obvious advantage of a CBDC over cryptocurrency is that it is issued by a known authority (central bank) and therefore, it is regulated and can assist with decisions such as monetary policy.”

“Furthermore, the value of a CBDC is expected to be linked to the respective economy’s currency, and thus, complements the current menu of currency instruments available (such as cash and savings in bank accounts at commercial banks),” the report’s authors pointed out.

“As a result, it is expected the price volatility and fluctuations in CBDCs will be lower and more stable than what is experienced in cryptocurrency markets,” they added.

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