In a bid to assert dominance in the blockchain sector and drive the development of a digital Hong Kong dollar, a group of scholars led by Cai Wensheng, Vice President of the Hong Kong University of Science and Technology, has proposed the creation of an HKD stablecoin.
The proposal aims to challenge the industry-leading stablecoins Tether (USDT) and Circle (USDC), to boost financial innovation and challenge dominant players.
Enhancing Hong Kong’s Leadership In The Blockchain Sector
In the Wu Blockchain report shared on Twitter, the scholars argue that the issuance of a stablecoin pegged to the Hong Kong dollar would not only consolidate its position as a leader in the blockchain industry but also accelerate the advancement of a HKD.
By improving transaction efficiency, reducing costs, and strengthening existing payment systems, the proposed stablecoin would bolster Hong Kong’s fintech capabilities, as outlined in the policy proposal.
The current government approach, limited to encouraging private institutions to issue stablecoins tied to the Hong Kong dollar, has been deemed too conservative by the scholars.
Instead, they advocate for the creation of a stable currency called HKDG, backed by Hong Kong’s substantial foreign exchange reserves, which stood at approximately US$430 billion as of March 2023.
This move aims to challenge the dominance of stablecoin giants while promoting financial innovation and de-dollarization. The proposed HKD stablecoin would reportedly offer a range of benefits, including enhanced efficiency and inclusiveness within its financial system.
Total market cap down by almost $200 billion in one day | Source: Crypto Total Market Cap on TradingView.com
With its stability, freedom of exchange, high security, openness, and cross-border liquidity, the stablecoin would support a wide array of financial innovations.
Moreover, it could serve as a catalyst for strengthening the local currency and furthering Hong Kong’s fintech capabilities, the scholars believe.
Regulatory Considerations And The Asian Landscape
While Hong Kong is currently at the forefront of crypto regulations in the region, the scholars’ proposal highlights the need to establish a regulatory framework specifically for stablecoins.
With other Asian countries, such as Japan and South Korea, ramping up their regulatory efforts and exploring digital asset frameworks, they want the country to maintain its competitive edge and lead the race in becoming a regional hub for digital assets.
As the Hong Kong scholars advocate the introduction of a government-backed HKD stablecoin, the landscape of stablecoins in the crypto market could witness a significant shift.
By challenging the dominance of USDT and USDC, Hong Kong could assert its position as a global fintech leader while fostering financial innovation and de-dollarization.