Cryptocurrency and blockchain advocates have written a report calling on the Hong Kong government to issue a stablecoin pegged to the region's dollar, which could challenge the dominance of Tether and USD Coin.
According to an English translation of a July 3 report provided by Chinese crypto reporter Colin Wu, four people linked to financial innovation proposed the government issues a stablecoin HKDG (Hong Kong Dollar Government) to support its leadership efforts in the digital economy. Wang Yang, vice president for institutional advancement at the Hong Kong University of Science and Technology; Cai Wensheng, founder of smartphone software firm Meitu; Lei Zhibin, Honorary Chairman of the Hong Kong Blockchain Association; and doctoral student Wen Yizhou co-authored the paper.
โThe issuance of a Hong Kong dollar-pegged stablecoin not only helps consolidate Hong Kong's leadership in the blockchain sector, but also drives the progress of the digital Hong Kong dollar, improving the efficiency of transactions, reducing transaction costs, improving current payment systems and further strengthening Hong Kong's fintech capabilities,โ the report says. โIn addition, the Hong Kong dollar stablecoin can improve 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 broader range of financial innovations.โ
A proposal for Hong Kong to issue a Hong Kong dollar stablecoin to compete with USDT/USDC
By Vice President of Hong Kong University of Science and Technology and Chairman of Meitu
Read more: https://t.co/pCTxkqMLM7
โ Wu Blockchain (@WuBlockchain) July 4, 2023
Yang, Wensheng, Zhibin and Yizhou argued that the government's plan to encourage private institutions to issue Hong Kong dollar-pegged stablecoins was "too conservative" in contrast to its intention to promote cryptocurrencies and blockchain. The report claimed that Hong Kong's foreign exchange reserves as of March 2023 totaled approximately $430 billion, "significantly exceeding" the combined market capitalization of tether (USDT) and USD currency (USDC) at approximately $120 billion.
โSAR-backed HKDG [special administrative region] the government will have greater credibility and less risk, [...] especially since the credibility of USDT remains in question, and USDC has recently experienced significant discounting.โ
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Among the benefits that the report's authors believed could be derived from the launch of HKDG were challenging the dominance of the US 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 linked to illicit financing, and computer hacking.
"The risks faced by the government-issued HKDG are significantly lower than those of the Hong Kong dollar stablecoin issued by private institutions," the report said.
In June, the Hong Kong government announced that it had formed a working group to oversee the development of Web3. Reportedly more than 80 companies involved in digital assets or blockchain considered establishing a presence in the SAR from March, in addition to the approximately 800 fintech companies already in Hong Kong.
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