HK Urged to Launch Stablecoin

Cryptocurrency and blockchain proponents have penned a report urging the Hong Kong government to issue a stablecoin pegged to the local dollar, which could challenge the dominance of Tether and USD Coin.

According to an English translation of a report published on July 3 by Chinese crypto reporter Colin Wu, four individuals associated with financial innovation proposed that the government issue a HKDG (Hong Kong Dollar Government) stablecoin to support its leadership in the digital economy.

Wang Yang, vice president for institutional advancement at Hong Kong University of Science and Technology; Cai Wensheng, proprietor of smartphone software firm Meitu Lei Zhibin, honorary chair of the Hong Kong Blockchain Association and Wen Yizhou, a doctoral student, co-authored the paper.

“Issuing a stablecoin pegged to the Hong Kong dollar not only helps to solidify Hong Kong’s leadership in the blockchain sector but also propels the progress of the digital Hong Kong dollar, enhancing transaction efficiency, reducing transaction costs, improving current payment systems, and further strengthening Hong Kong’s fintech capabilities,” the report stated.

Furthermore, the Hong Kong Dollar stablecoin can improve the efficacy and inclusiveness of Hong Kong’s financial system; its stability, freedom of exchange, high security, openness, and cross-border liquidity can support a broader array of financial innovations.

Yang, Wensheng, Zhibing, and Yizhou argued that the government’s plan to encourage private institutions to issue stablecoins pegged to the Hong Kong dollar was “too conservative” compared to its goal of promoting crypto and blockchain.

According to the report, Hong Kong’s foreign exchange reserves as of March 2023 amounted to approximately $430 billion, “significantly surpassing” the combined market capitalization of Tether and USD Coin, which was approximately $120 billion:

”HKDG backed by the SAR [special administrative region] government will have higher credibility and lower risk, […] especially as the credibility of USDT remains in question, and USDC has recently experienced severe discounts.”

The report’s authors believed that the introduction of HKDG could challenge the dollar’s dominance, provide additional liquidity for government initiatives, and make it simpler for officials to monitor and evaluate risks.

Nonetheless, the report cited potential risks, such as legal and regulatory obstacles, international disputes over transactions possibly linked to illicit funding, and hacking.

“The risks borne by the government-issued HKDG are significantly lower than those of the Hong Kong Dollar stablecoin issued by private institutions,” according to the report.

In June, the Hong Kong government announced the formation of a task force to supervise Web3 development. In addition to the approximately 800 fintech companies already present in Hong Kong, more than 80 firms involved in digital assets or blockchain reportedly contemplated establishing a presence in the SAR as of March.