To enhance competition with stablecoins like USDT and USDC, a recent policy proposal advises the Hong Kong government to create its own stablecoin, HKDG, supported by its foreign exchange reserves.
Wang Yang, the Vice Chancellor of the Hong Kong University of Science and Technology and Chief Scientific Advisor of the Hong Kong web3 Association, along with angel investor Cai Wensheng, BlockCity founder Lei Zhibin, and Ph.D. student Wen Yizhou, co-authored the paper. The news was initially reported by Wu Blockchain.
The proposal underscores the significance of these coins as a means to connect traditional finance with the digital economy. It highlights the perceived advantages, as identified by the authors, of a stablecoin pegged to the Hong Kong Dollar. These benefits include improving financial inclusiveness, enhancing transaction efficiency, reducing costs, refining payment systems, and reinforcing the fintech capabilities of the Chinese special administrative region.
According to the experts, the current government plan, which permits private institutions to issue stablecoins, lacks ambition and may lead to a restricted market share. They make a comparison between Singapore’s XSGD stablecoin, issued by Xfers, which has a market capitalization of $6.6 million, and USDT and USDC combined, which exceed $110 billion. The proposal points out that Hong Kong’s foreign exchange reserves, totaling around $430 billion as of March, surpass the combined market capitalization of USDT and USDC. Consequently, the proposal suggests that an HKDG stablecoin supported by the government would offer greater credibility and reduced risk.
Stablecoin Risks Acknowledged, HKDG Shines As Safer Option
The proposal recognized possible risks like legal and regulatory challenges, technical uncertainties, and short-term exchange rate fluctuations. However, it contends that the risks associated with the government-issued HKDG would be lower compared to these coins issued by private entities.
Furthermore, the paper put forth the notion that HKDG would enable Hong Kong to make significant progress in the direction of reducing reliance on the U.S. Dollar and confronting its supremacy within the crypto ecosystem. The experts asserted that HKDG could additionally offer increased liquidity for government investment initiatives, facilitate the digital transformation of traditional assets, foster financial innovation and competitiveness, and enhance transparency.
In a recent development, Hong Kong has indicated its intention to regain its status as a prominent global center for the cryptocurrency industry. To achieve this goal, the region has established a web3 task force with the aim of cultivating a flourishing ecosystem in the area.