- Hong Kong’s e-HKD CBDC enters phase 2 of its pilot.
- Crypto scammers are promoting e-HKD investment opportunities.
- This incident adds to the arguments against CBDCs.
According to the Atlantic Council, the race to develop national digital currencies is heating up worldwide, with 74 countries either actively developing or researching central bank digital currencies (CBDCs). Yet, CBDCs remain a contentious topic, with critics sounding the alarm on the loss of financial sovereignty potentially posed.
Despite these concerns, Hong Kong opened phase 2 of its e-KHD pilot on March 14, which seeks to better understand retail programmable payments, tokenized assets settlement, and offline payments while also exploring a wholesale CBDC. However, the Hong Kong Monetary Authority (HKMA) has reported that crypto scammers are exploiting the pilot, adding weight to the arguments against CBDC adoption.
e-HKD Not Safe From Crypto Scammers
The HKMA stated that it had received reports of entities falsely claiming to be participants in the e-HKD pilot. These bogus firms are promoting fraudulent investment opportunities and products tied to the e-HKD trials to solicit funds. The HKMA called on the public to report such cases to Hong Kong police for investigation.
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The HKMA published the official list of authorized entities participating in the CBDC pilot to combat the crypto scammers. The participants include major payment players like Alipay, Visa, and Mastercard, as well as Hong Kong’s note-issuing banks, HSBC, Bank of China, and Standard Chartered.
The HKMA reminded the public that none of the legitimate pilot participants would offer e-HKD-linked investment products to individuals. It urged citizens to remain vigilant against such schemes and to report suspected scams to the authorities.
The exploitation of Hong Kong’s e-HKD program by crypto scammers underscores that even central banks are not immune to the risks of scams and illicit activities in the digital realm. This adds to the broader concerns swirling around the potential downsides associated with CBDCs.
CBDC Concerns
Critics raise concerns about the potential downside of CBDCs concerning cybersecurity vulnerabilities. They argue that knowledgeable hackers could target individual accounts. Similarly, operating a centralized ledger system is susceptible to hacking by hostile nation-states or cyber criminals.
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More concerning is the potential loss of financial sovereignty posed by CBDCs and the scope for an overreaching government to spy on its citizens. The Heritage Foundation warned that CBDCs mean “every single cent can be tracked, traced, taxed, and stopped or even forced without your consent.”
A 2023 survey conducted by the Cato Institute found that more than twice as many Americans, at 34%, opposed the digital dollar compared to 16% who were in favor. The remaining respondents did not have an opinion on the matter, which the Cato Institute attributed to almost three-quarters of Americans not being familiar with CBDCs.
On the Flipside
- The e-HKD program kicked off in 2017 under the name Project Lion Rock.
- The Indian e-rupee has had a low uptake, forcing authorities to incentivize its use, including cashback offers.
- Donald Trump vowed to end the digital dollar if he wins the 2024 US presidential election.
Why This Matters
The rise of crypto scammers targeting the e-HKD pilot underscores the challenges authorities face in rolling out CBDCs. Thwarting fraudsters is crucial to building trust in such projects, yet the public’s resistance to CBDCs forms deeper concerns around the loss of financial sovereignty which appears to be falling on deaf ears.
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