A group of crypto and blockchain enthusiasts have written a report urging the Hong Kong government to introduce a stablecoin tied to the local currency. This move is seen as a potential challenge to the dominant position of Tether and USD Coin in the market.
The report, as translated by Chinese crypto reporter Colin Wu on July 3, was authored by four individuals with strong connections to financial innovation. They include Wang Yang, the vice president for institutional advancement at Hong Kong University of Science and Technology; Cai Wensheng, the founder of smartphone software firm Meitu; Lei Zhibin, an honorary chair of the Hong Kong Blockchain Association; and Wen Yizhou, a doctoral student.
The proposed stablecoin, called HKDG (Hong Kong Dollar Government), aims to support the government’s efforts in leading the digital economy. The authors believe that issuing a stablecoin pegged to the Hong Kong dollar will not only strengthen Hong Kong’s position in the blockchain sector but also improve transaction efficiency, reduce costs, enhance payment systems, and boost fintech capabilities. They further argue that the stablecoin will promote financial system efficiency and inclusivity, offering stability, secure exchanges, openness, and cross-border liquidity to facilitate a broader range of financial innovations in Hong Kong.
In contrast to the government’s strategy of encouraging private institutions to issue stablecoins tied to the Hong Kong dollar, Yang, Wensheng, Zhibin, and Yizhou argued that this approach was overly cautious and not aligned with the goal of promoting crypto and blockchain. According to their report, Hong Kong’s foreign exchange reserves reached approximately $430 billion as of March 2023, surpassing the combined market capitalization of Tether (USDT) and USD Coin (USDC), which amounted to around $120 billion.
The report’s authors highlighted several benefits expected from the launch of HKDG, including challenging the dominance of the US dollar, increasing liquidity for government projects, and facilitating risk assessment by officials. However, the report also acknowledged potential risks, such as legal and regulatory challenges, international disputes related to transactions involving illicit funding, and potential hacks.
According to the report, the risks associated with the government-issued HKDG are considerably lower than those of the Hong Kong Dollar stablecoin issued by private institutions. Furthermore, in June, the Hong Kong government formed a task force to oversee the development of Web3, and it appears that many digital asset and blockchain firms are considering establishing a presence in the region, with over 80 such firms already interested as of March, in addition to the existing 800 fintech companies in Hong Kong.