Hong Kong urged to issue stablecoin to compete with Tether and USDC

Quick Take

  • A new policy proposal urges the Hong Kong government to issue a stablecoin pegged to the Hong Kong dollar to compete with USDT and USDC.
  • A government-backed stablecoin would reduce costs, improve payment systems, aid de-dollarization and strengthen Hong Kong’s fintech capabilities, the document claims.

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. 

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