The Hong Kong Monetary Authority unveiled the completed Aurum prototype (CBDC) retail central bank digital currency on October 21. The system, developed in collaboration with the Bank for International Settlements (BIS) Innovation Center, has a unique structure that reflects the difficulties of Hong Kong’s existing money-issuing system.

Aurum consists of a wholesale interbank system and a retail e-wallet. An e-wallet is created at a local bank and has a smartphone interface. The validation system prevents excessive lending by the bank and double redemption by the user.

Intermediary retail CBDCs are used in e-wallets, while CBDC-backed stablecoins are used in the interbank system. The unusual CBDC-backed stablecoins digitally mirror Hong Kong’s current currency system, where notes are issued by three financial institutions and backed by a central bank. CBDC is a direct liability to the central bank, while stablecoins are liabilities to the issuing bank and the backing funds are owned by the central bank. The authors stated:

“The implementation of CBDC-backed stablecoins has never been done before, and so we felt it could complement the growing body of private sector stablecoin research. What actually sets Aurum apart from private sector stablecoins is that Aurum stablecoin balances are reconciled with the issuing bank’s Real Time Gross Settlement (RTGS) balance with the central bank.
According to the designer, the high level of decoupling between wholesale and retail registers gives the system a high level of cyber resilience.

Join us at @HongKongFinTech 2022 on October 31 at 15.05 Hong Kong time when the #BISInnovationHub team in Hong Kong will unveil Project Aurum, the #CBDC retail tech stack prototype @hkmagovhk
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— Bank for International Settlements (@BIS_org) October 21, 2022
Retail transactions are done with aliases. The identity of the users can only be seen by the intermediary who performs the Know Your Customer functions. Unused transaction records are used to anonymously track digital currency holdings across multiple transactions as a safety measure in the event of a commercial bank failure.

Related: Not like China: Hong Kong reportedly wants to legalize cryptocurrency trading

Hong Kong launched CBDC research in June 2021 as part of the comprehensive Fintech 2025 strategy. The monetary authority handles retail and wholesale CBDC separately. It was previously noted that retail CBDCs do not have a “direct role” in the payments market, but use cases may emerge quickly. Aurum is the first project implemented by the BIS Innovation Hub.

Source: CoinTelegraph