The Hong Kong Monetary Authority presented its completed Aurum retail central bank digital currency (CBDC) prototype on Oct. 21. The system, developed in conjunction with the Bank for International Settlements (BIS) Innovation Hub, has a unique structure that reflects the intricacies of the existing system for issuing money in Hong Kong.

Aurum consists of a wholesale interbank system and retail e-wallet. The e-wallet is created at a local bank and has a smartphone interface. A validator system prevents bank over-issuance and user double redemption.

The intermediated retail CBDC is used in the e-wallets, and CBDC-backed stablecoins are used in the interbank system. The unusual CBDC-backed stablecoins digitally mirror Hong Kong’s existing currency system, in which bank notes are issued by three financial institutions and backed by the central bank. The CBDC is a direct liability of the central bank, while the stablecoins are liabilities of the issuing bank, with backing assets held by the central bank. The authors stated:

“Bringing CBDC-backed stablecoins to life has never been done before and we therefore felt that doing so may supplement the growing body of research on private sector stablecoins. Indeed, what distinguishes Aurum from private sector stablecoins is that Aurum’s stablecoin balances are reconciled, versus real time gross settlement (RTGS) balances of the issuing bank with the central bank.”

The high level of decoupling between the wholesale and retail ledgers gives the system a high level of cyber-resilience, the designer said.

Retail transactions are performed with aliases. Only the intermediary that performs Know Your Customer functions can see the identity of users. Unspent transaction output records are used to track digital currency ownership anonymously through multiple transactions as a safety measure in case of commercial bank bankruptcy.

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