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The 11th “Huarui Financial Technology Salon” series event, jointly hosted by Shanghai Huarui Bank, International Monetary Institute (IMI) of Renmin University of China, and the Fintech Research Institute of Renmin University of China, was recently held, discussing “Hong Kong: Building a Global Digital Financial Center”. Many finance industry insiders are optimistic about Hong Kong’s advantages and prospects in building a global digital financial center, suggesting Hong Kong to explore a new path that combines virtual assets and traditional finance, and organically integrate digital and physical economies in the Greater Bay Area. In the future, the development of the offshore RMB market and digital finance can be organically combined, and the Hong Kong offshore RMB market can be improved with the use of DCEP, providing more development opportunities for the construction of the Hong Kong Financial Center.

Zhao Xijun, academic member of IMI and co-dean of the Capital Market Research Institute of Renmin University of China, said that the mainland’s digital economy is currently booming and the construction of Hong Kong’s digital financial center is expected to continue to heat up. As of June 1, 2023, the new licensing system for Hong Kong’s virtual asset trading platform has been put into effect. Earlier this year, the Hong Kong government proposed to promote the development of the Hong Kong Web3.0 industry in the budget, and to promote Hong Kong as an international virtual asset center. Last October, the Hong Kong government released policy statements on the development of virtual assets in Hong Kong, etc., witnessing that Hong Kong is continuously advancing towards the goal of building a global digital financial center.

E Zhihuan, Chief Economist of Bank of China Hong Kong, believes that the introduction of a cryptocurrency exchange licensing system in Hong Kong in June this year is part of a series of policy combinations in Hong Kong. The construction of Hong Kong’s digital financial center has achieved relatively significant initial development. Hong Kong itself has become a leading financial center in the world, and the development of a digital financial center has many favorable conditions, but it also faces all-round competition. How to transform the regulatory environment, market system, and institutional business environment of Hong Kong as a traditional international financial center into advantages for the continued development of a digital financial center is an important issue.

What opportunities and challenges are there in Hong Kong’s construction of a digital financial center? In E Zhihuan’s view, in addition to challenges from other international financial centers, Hong Kong’s technological development is generally lagging behind financial development, and the penetration rate of mobile payments in Hong Kong is significantly lower than in other cities in the Greater Bay Area. Hong Kong can use the Greater Bay Area as the hinterland for future development to promote the construction of the digital financial center, but there are currently certain obstacles to data interconnection and interoperability in the Greater Bay Area. From a technical development perspective, there are differences between different cities, technical standards, and underlying algorithm codes, as well as differences in the strictness of API data interfaces and cross-border data compliance reviews. The difference in data standards currently has an impact on the construction of Hong Kong’s digital financial center. In addition, recently, in the global virtual exchange rankings, the trading volume is relatively large, and this large or huge amount of trading brings market volatility risks, credit risks and other types of risks. More regulatory measures need to be introduced in terms of risk prevention.

E Zhihuan suggests, firstly, on the regulatory level, there is a clear stance on licensed operations, and the next step should be to clarify whether there should be a focus on the development of virtual assets or digital financial centers. Digital finance includes two major themes, one is fintech companies, and the other is traditional financial institutions using digital technology to achieve payment, financing, investment, insurance, and other innovative financial business models. From a risk perspective, there should be targeted regulatory rules to ensure a stable and healthy market development.

Secondly, while developing the digital financial center, it is necessary to achieve the corresponding integration or connection between virtual assets and traditional currency. For example, how traditional commercial banks can actively participate in digital financial services, gradually launch a series of services such as virtual currency exchange, storage, collateral, loans, custody, investment, etc., currently most large banks are more cautious about virtual currency. The next step to develop such business needs some time to prepare, and the Special Administrative Region government also needs to provide more specific guidance on bank guidelines.

Thirdly, in the Greater Bay Area, the advantages of technological development should be further extended to the field of digital finance, to promote the organic integration of the digital economy and the real economy, and provide the digital financial center with the specific connotation of the real economy. China’s digital economy has developed rapidly in the past few years, especially the digital economy in the Greater Bay Area has maintained a leading position in the entire digital economy development, and some specific arrangements may be needed for the development of blockchain and related information between different regions and cross-border data flow.

Fourthly, to use the development of the digital financial center to aid the construction of an offshore RMB hub. For a long time, Hong Kong has achieved very stable achievements in the construction of an offshore RMB center, and Hong Kong has become a very important promoter of the global offshore market. The clearing and settlement conducted through Hong Kong accounts for more than 70% of the world, but it is basically done in traditional ways. In the future, the development of the RMB’s offshore market and digital finance can be organically combined, especially by accelerating the improvement of Hong Kong’s offshore RMB market in the form of DCEP, and achieving Hong Kong’s bidirectional promotion of cryptocurrencies, providing more development opportunities for the construction of Hong Kong’s financial center.

Xiao Geng, Director of the Institute for Policy and Practice Research at the Shenzhen Institute of Advanced Finance, the Chinese University of Hong Kong, and Chairman of the Hong Kong International Financial Association, believes that in digital finance, especially in the area of virtual assets, Hong Kong is currently acting bravely and timely, attracting a lot of talent, technology, and products. The biggest challenge faced is regulation, and the Hong Kong Securities and Futures Commission is currently regulating licensed digital financial institutions and is gradually gaining experience.

Xiao Geng expressed that Hong Kong could explore ways to innovate its offshore financial services in terms of efficiency, quality, and scale under the technology of digital finance, contributing to the global financial order. On the other hand, it could help China solve some of the bottleneck issues in its development, and could explore how to use digital financial technology to help the real economy solve financing difficulties. He emphasized that it needs to be pointed out that the aim of using digital technology is not to fully decentralize, but to create a digital financial platform that better controls risk, more precisely regulates, and more efficiently utilizes digital information and smart contracts to serve the real economy.

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