A new policy proposal encourages the Hong Kong government to issue its own stablecoin, HKDG, backed by its foreign exchange reserves — in order to compete with existing stablecoins such as USDT and USDC.
The paper is co-authored by Wang Yang — Vice Chancellor of the Hong Kong University of Science and Technology and Chief Scientific Advisor of the Hong Kong web3 Association — angel investor Cai Wensheng, BlockCity founder Lei Zhibin and Ph.D. student Wen Yizhou. Wu Blockchain first reported the news.
The proposal emphasizes the importance of stablecoins as a bridge between traditional finance and the digital economy, highlighting the authors’ perceived benefits of a Hong Kong Dollar-pegged stablecoin in enhancing financial inclusiveness, boosting transaction efficiency, reducing costs, improving payment systems and strengthening the Chinese special administrative region’s fintech capabilities.
The experts argue that the government’s current plan, allowing private institutions to issue stablecoins, is not ambitious enough and may result in limited market share. They say it draws a parallel between Singapore’s XSGD stablecoin issued by Xfers with a market cap of $6.6 million, compared to more than $110 billion for USDT and USDC combined.
With Hong Kong's foreign exchange reserves — some $430 billion as of March — exceeding the combined market capitalization of USDT and USDC, an HKDG stablecoin backed by the government would offer higher credibility and lower risk, the proposal said.
Potential risks of a stablecoin
The proposal did acknowledge potential risks, such as legal and regulatory challenges, technical risks and short-term exchange rate fluctuations, but argues that the risks borne by government-issued HKDG were lower than those of stablecoins issued by private institutions.
HKDG would benefit from government regulation and the transparency provided by blockchain technology, the authors said.
Additionally, the paper argued HKDG would help Hong Kong to take a substantial step toward de-dollarization and challenge the dominance of the U.S. Dollar in the crypto ecosystem. The experts claimed it could also provide additional liquidity for government investment projects, facilitate the digitization of traditional assets, promote financial innovation and competitiveness and increase transparency.
Hong Kong has recently signaled its desire to reestablish itself as a global hub for the crypto industry, setting up a web3 task force to help “build a thriving ecosystem” in the region.
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