On 28 October 2024, the Hong Kong Monetary Authority and the Bank of Thailand announced a strategic collaboration to advance cross-border tokenisation. This partnership, undertaken within the frameworks of Project Ensemble and Project San, is designed to explore innovative applications for tokenised financial transactions between Hong Kong and Thailand. By integrating their digital financial infrastructures, the Hong Kong Monetary Authority and the Bank of Thailand aim to streamline cross-border trade payments, enhance the operation of carbon credit markets, and strengthen interoperability in their respective financial systems through distributed ledger technology.
The partnership builds on a longstanding commitment between the Hong Kong Monetary Authority and the Bank of Thailand to foster financial innovation. Since signing a Memorandum of Understanding in 2019, these two central banks have successfully collaborated on several ground-breaking financial technology projects, including Project Inthanon-LionRock and Project mBridge. These initiatives have established a foundation of trust and shared ambition, positioning both authorities as leaders in the development of digital financial solutions that address the complexities of a globalised economy. With Project Ensemble and Project San, the Hong Kong Monetary Authority and the Bank of Thailand are extending their commitment to transformative cross-border financial technologies.
This latest collaboration offers significant benefits for both Hong Kong and Thailand, especially in simplifying cross-border financial transactions. By focusing on payment-versus-payment and delivery-versus-payment mechanisms, the Hong Kong Monetary Authority and the Bank of Thailand are developing a system where cross-border payments can occur seamlessly, reducing the need for multiple intermediaries and lowering transaction costs. These improvements are expected to increase efficiency in trade payments and support the growth of sustainable carbon credit markets, which rely on secure, transparent tokenised transactions.
The collaboration also provides a unique opportunity to address common challenges while respecting the regulatory and operational differences of each jurisdiction. The Hong Kong Monetary Authority and the Bank of Thailand are keen to explore the potential benefits that can be achieved by deepening their understanding of the regulatory environments and market structures specific to each region, setting a precedent for other jurisdictions to follow.
A central aspect of this initiative is the proof of concept for linking distributed ledger technology-based financial market infrastructures under Project Ensemble and the Bank of Thailand’s Project San. This proof of concept aims to establish whether these distributed ledger technology systems can operate effectively together, supporting the safe and efficient transfer of tokenised assets across borders. It will examine a variety of technical, regulatory, and operational factors, providing valuable insights into the interoperability of distributed ledger technology platforms. Through this rigorous testing, the Hong Kong Monetary Authority and the Bank of Thailand hope to identify best practices for future cross-border tokenisation initiatives and to ensure that these technologies are both scalable and secure.
The Ensemble Sandbox, launched by the Hong Kong Monetary Authority in August 2024, serves as a testing environment where industry participants can conduct experiments in tokenisation across four critical areas: fixed income and investment funds, liquidity management, green and sustainable finance, and trade and supply chain finance. This collaborative environment allows participants to develop and refine tokenised solutions while remaining within the regulatory frameworks of both jurisdictions.
The Bank of Thailand’s Project San, initiated in June 2024, aims to build tokenisation ecosystem. This includes the development of a wholesale settlement engine, compatibility with Ethereum Virtual Machine ledgers, and mechanisms for interoperability. By bringing together the technical infrastructure of Project San and the research-focused approach of Project Ensemble, the Hong Kong Monetary Authority and the Bank of Thailand are creating a comprehensive framework to support a wide range of tokenised financial assets.
Howard Lee, Deputy Chief Executive of the Hong Kong Monetary Authority, expressed his enthusiasm for the joint initiative, noting the shared vision between the Hong Kong Monetary Authority and the Bank of Thailand in harnessing central bank digital currencies for cross-border financial applications. “Expanding our partnership to explore cross-border tokenisation use cases further underscores this shared vision,” he remarked. “As with our previous projects, I am confident that this collaboration will yield valuable insights for both jurisdictions.”
Mrs Alisara Mahasandana, Deputy Governor of Corporate Development at the Bank of Thailand, highlighted the mutual benefits that could arise from this partnership. She stated, “Through our collaborative efforts in exploring the interoperability of tokenisation, mutual benefits for both Hong Kong and Thailand could be reaped. This partnership will significantly advance tokenisation efforts in our financial sectors, both domestically and cross-border, by offering broader insights into tokenisation, as different technical designs, business requirements, and regulatory frameworks of each jurisdiction will be taken into account.”
(Source: https://www.hkma.gov.hk/eng/news-and-media/press-releases/2024/10/20241028-4/)
