The Hong Kong Monetary Authority (HKMA) has published a new white paper on distributed ledger tech.
The HKMA, which is Hong Kong’s de facto central bank, produced the paper in partnership with the Hong Kong Applied Science and Technology Research Institute (ASTRI).
The move comes just over two months after the two sides began collaborating on blockchain applications, a process that has seen activity amongst Hong Kong banks looking to build a system for sharing mortgage valuations.
The HKMA is one of a growing body of central banks experimenting with or exploring applications. In the past year, central banks from Russia, Canada and the United Kingdom, among others, have actively tested the tech for uses in the areas of electronic money and document validation.
The paper constitutes a broad overview of the tech, offering a top-down look at some of the use cases the HKMA has examined in partnership with ASTRI. Overall, the paper presents blockchain as a tool that “carries enormous potential” depending on the kind of application.
“The potential applications of DLT, as the fintech industry and many central banks and regulatory authorities soon found, are not limited to dealing in virtual currencies or commodities. The very fact that DLT allows information or records to be transferred and updated by network participants, and this to be done in a trustworthy, secure and efficient way, carries enormous potential.”
Though largely striking a positive tone about the tech, the paper’s authors note that, from the regulatory perspective, risks remain. Specifically, the paper highlights the risk of public blockchains being used to launder funds.
“The possible risks involved in operating such platforms should not be underestimated,” it states. “These may include operational risks, cyber attacks, and money laundering issues.
The white paper release is only the first step in a wider process, officials in Hong Kong say.
During an event held earlier today, HKMA chief executive Norman Chan said the government is planning further research. ASTRI is looking to publish a follow-up paper sometime in the middle of next year, building on its past findings and exploring “whether some of this work can be put into action”, Chan explained.
Coinciding with the white paper release is the official launch of a fintech innovation hub, which, according to Chan, will serve as a test bed for continued experimentations between Hong Kong’s financial firms, startup companies and regulators.
“The Hub is equipped with high-powered computing resources and supported by the experts at ASTRI to allow banks, payment service providers, fintech firms and the HKMA to brainstorm innovative ideas, try out and evaluate new fintech solutions in a safe and efficient manner,” he said.
Chan added that its regulatory sandbox, which hosted the mortgage valuation system trials, is expected to add more financial institutions in the months ahead.
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