Bank of China Hong Kong (BOCHK) has initiated a pilot project to explore the use of smart contracts in the proposed Hong Kong central bank digital currency (CBDC). The bank will examine how smart contracts can be employed in prepaid service contracts via its mobile app, BOC Pay. Initially, the pilot will involve BOCHK employees and ten merchants from sectors like medicine, beauty, education, and fitness.

The core idea is that customers’ prepaid funds will be automatically converted into e-Hong Kong Dollars (e-HKD) within accounts governed by smart contracts. These smart contracts execute transactions based on predefined conditions, enabling users to make payments to specific merchants for products and services.

According to Chen Guang, Deputy General Manager of the Digital Currency Task Force at BOCHK, this pilot aims to make it easier for merchants to participate by leveraging existing BOCHK apps, reducing technical barriers and additional resources. This approach is expected to facilitate the adoption of the CBDC.

BOCHK has been exploring prepaid functionalities since May when the Hong Kong Monetary Authority (HKMA) began CBDC pilots involving sixteen banks. The pilots aim to test various payment use cases, including full-fledged payments, offline payments, tokenized deposits, and programmable payments for retail applications.

The HKMA has emphasized that a mainstream launch of e-HKD will only happen when key industry players have gained the necessary experience and regulatory clearance. As of now, cross-border payments are emerging as a prominent use case for the CBDC. However, the HKMA acknowledges that the CBDC must be cheaper, faster, and more secure to compete effectively with existing retail payment options