A policy paper has recently proposed the creation of a government-backed stablecoin, the HKDG, in Hong Kong to potentially compete with well-established digital counterparts, such as USDT and USDC.
A policy paper suggesting the Hong Kong government to launch its own stablecoin, named HKDG, backed by its substantial foreign exchange reserves, has been put forth. This development comes as an effort to compete with well-established stablecoins such as USDT and USDC.
The report was jointly penned by Wang Yang, vice chancellor of the Hong Kong University of Science and Technology, chief scientific advisor of the Hong Kong web3 Association, angel investor Cai Wensheng, BlockCity founder Lei Zhibin, and doctoral candidate Wen Yizhou. Initial coverage of this news was by Wu Blockchain.
The proponents of the policy underscore the vital role of stablecoins in forming a link between traditional finance and the growing digital economy.
They firmly believe that a stablecoin pegged to the Hong Kong Dollar can contribute to improved financial inclusion, greater transaction efficiency, cost reduction, enhanced payment systems, and the amplification of fintech capabilities in this Chinese special administrative region.
Contrary to the government’s existing plan, which permits private entities to issue stablecoins, the authors believe that this approach may not be bold enough and may result in a limited market share.
They draw an analogy with Singapore’s XSGD stablecoin, issued by Xfers, which only has a market cap of $6.6 million, compared to the combined $110 billion of USDT and USDC.
Considering Hong Kong’s foreign exchange reserves of approximately $430 billion as of March, the authors of the policy propose that a government-backed HKDG stablecoin would convey greater trust and pose lesser risk.
The policy, while being optimistic, does acknowledge the potential risks such as legal and regulatory issues, technical difficulties, and short-term exchange rate volatility. However, the authors argue that the risks associated with a government-issued HKDG are lower than those of stablecoins launched by private entities.
Benefits of the HKDG would include better regulation by the government and increased transparency offered by blockchain technology, according to the authors.
Further, the authors suggest that HKDG could push Hong Kong significantly closer to de-dollarization and challenge the supremacy of the U.S. Dollar within the crypto world.
They argue it could also supply extra liquidity for government investment projects, assist in the digitization of traditional assets, foster financial innovation and competitiveness, and improve transparency.
This move aligns with Hong Kong’s recent declaration of its intent to reposition itself as an international hub for the cryptocurrency industry, with the establishment of a web3 task force aimed at fostering a thriving ecosystem in the region.