Hong Kong's Project Ensemble explores tokenization in banking with new CBDC sandbox

Hong Kong has launched a sandbox for Project Ensemble, a wholesale central bank digital currency project (CBDC), as the region moves closer to testing tokenization within the traditional financial industry.

Wholesale CBDCs are intended for use primarily by financial institutions rather than the general public. Unlike retail CBDCs, designed for everyday transactions, wholesale CBDCs are used for interbank settlements and large-value payments.

The Hong Kong Monetary Authority, the de facto central bank, announced the sandbox on Wednesday and detailed the four aspects it will initially focus on — fixed income and investment funds, liquidity management, green and sustainable finance, and trade and supply chain finance.

The HKMA said the sandbox is designed to facilitate interbank settlement using experimental tokenized money. Major participants include the Bank of China, HSBC, Hang Seng Bank, Standard Chartered Bank, Ant Digital, HashKey and Microsoft. Several asset managers—BlackRock, CSOP Asset Management, Franklin Templeton and China Asset Management—also plan to participate in the Project Ensemble sandbox.

The launch of the sandbox comes after the HKMA established Project Ensemble in March as part of the second phase of its e-HKD pilot to study the programmability, tokenization and atomic settlement associated with the CBDC in the trial. According to its website, the HKMA started researching CBDCs in 2017 and began placing greater emphasis on studying a potential e-HKD in 2021 at both wholesale and retail levels.

“Since the launch of Project Ensemble in March, we have been encouraged by the strong interest from the industry in pioneering innovative solutions to redefine the digital finance landscape,” Eddie Yue, chief executive of the HKMA, said in the Wednesday statement. “The introduction of the Project Ensemble Sandbox to test tokenization use cases marks a significant step forward for the HKMA and the industry to explore the application of tokenization in real-life business scenarios,” Yue added.

As part of the sandbox, Ant Digital Technologies, the blockchain arm of Ant Group, said that it is seeking to improve financing efficiency. For example, energy firm Longshine Technology has digitized over 9,000 of its charging piles as “real world assets” (RWAs) through Ant Digital, and Longshine has “successfully secured its first cross-border financing for RWAs in Hong Kong,” Ant Digital added.

HashKey Group, a Hong Kong-based digital asset services firm, also plans to test the tokenization and trading of RWAs, including carbon credits, green assets, and money market funds, according to its statement.