Crypto and blockchain advocates have authored a report calling for the Hong Kong government to issue a stablecoin pegged to the country’s dollar which could challenge the dominance of Tether (USDT) and USD Coin (USDC).
According to an English translation of a July 3 report provided by Chinese crypto reporter Colin Wu, four individuals tied to financial innovation proposed the government issue a HKDG (Hong Kong Dollar Government) stablecoin to support its leadership efforts in the digital economy. Wang Yang, vice president for institutional advancement at Hong Kong University of Science and Technology, Cai Wensheng, founder of smartphone software firm Meitu, Lei Zhibin, an honorary chair of the Hong Kong Blockchain Association, and PhD student Wen Yizhou 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,” said the report. “Moreover, the Hong Kong Dollar stablecoin can enhance the efficiency and inclusiveness of Hong Kong’s financial system; its stability, freedom of exchange, high security, openness, and cross-border liquidity can support a wider range of financial innovations.”
Yang, Wensheng, Zhibin, and Yizhou argued that the government’s plan of encouraging private institutions to issue stablecoins pegged to the Hong Kong dollar was “too conservative” in contrast to its intention of promoting crypto and blockchain. The report claimed that Hong Kong’s foreign exchange reserves as of March 2023 totaled roughly $430 billion, “significantly surpassing” the combined market capitalization of USDT and USDC at roughly $120 billion.
”HKDG backed by the SAR government will have higher credibility and lower risk […] especially as the credibility of USDT remains in question, and USDC has recently experienced severe discounts.”
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Among the benefits the report’s authors believed could come from the launch of HKDG included challenging the dominance of the U.S. dollar, providing additional liquidity for government projects, and making it easier for officials to monitor and assess risks. However, the report cited potential risks including legal and regulatory challenges, international disputes over transactions potentially tied to illicit funding, and hacks.
“The risks borne by the government-issued HKDG are significantly lower than those of the Hong Kong Dollar stablecoin issued by private institutions,” said the report.
In June, the government of Hong Kong announced it had formed a task force to oversee the development of Web3. More than 80 firms involved in digital assets or blockchain reportedly considered establishing a presence in the SAR as of March, in addition to the roughly 800 fintech companies already in Hong Kong.
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