• Hong Kong to launch a stablecoin pegged to the region’s dollar in a bid to compete and challenge the dominance of the US dollar.

• This comes in response to several calls on the government to create a stablecoin to leverage its numerous benefits. 

In a bid to seal its leadership in the crypto and blockchain ecosystem, Hong Kong is issuing a stablecoin to compete with the popular ones in the industry. According to reports, the stablecoin would be pegged to the Hong Kong dollar.

Over the years, some financial innovators have been calling on the government to introduce HKDG (Hong Kong Dollar Government) to support and largely contribute to the digital economy. This was reported by Chinese crypto reporter Colin Wu. 

Out of the many advocates, four individuals namely: “Wang Yang, vice president for institutional advancement at Hong Kong University of Science and Technology, Cai Wensheng, founder of smartphone software firm Meitu, Lei Zhibin, an honorary chair of the Hong Kong Blockchain Association, and Wen Yizhou, doctoral student who co-authored the paper” were the most active ones. 

According to the proposal, the HKDG is said to have the ability to challenge the US dollar dominance and make monitoring and risk assessment easier by providing liquidity for government projects. It can bridge a long-standing gap of inclusiveness while ensuring efficiency within the financial space. On top of this, its merits including openness, stability, security, and cross border liquid could facilitate financial innovations. 

Issuing a stablecoin pegged to the Hong Kong dollar not only helps to solidify Hong Kong’s leadership in the blockchain sector but also propels the progress of the digital Hong Kong dollar, enhancing transaction efficiency, reducing transaction costs, improving current payment systems, and further strengthening Hong Kong’s fintech capabilities.

More Details on Hong Kong’s Stablecoin

The authors were of the strong opinion that the approach to get private firms to issue this Hong Kong dollar-pegged stablecoin is too conservative. They also cited in the report that the country’s foreign exchange reserves were $430 billion as of March 2023. This is more than the combined market capitalization of USDT and USDC. 

HKDG backed by the SAR [special administrative region]government will have higher credibility and lower risk, […] especially as the credibility of USDT remains in question, and USDC has recently experienced severe discounts.

The report, however, recognizes that there could be challenges in this implementation. This may include legal and regulatory challenges, illicit funding and money laundering, etc. However, the risk may be lower if the stablecoins are issued by the government instead of a private institution. 

On June 30, the Hong Kong government established a task force to oversee the development and growth of Web3. This task force was made up of 11 government officials and 15 industry participants. 

Hong Kong’s Financial Secretary Paul Chan explains that the country seeks to accelerate innovative exploration and development. In addition, they seek to introduce more application models and also attract heavyweight companies to build the ecosystem.

As of March 20, 80 virtual asset-related companies had reportedly shown interest in establishing in the region. It can be recalled that Johnny Ng, a Hong Kong Legislative Council member, on June 10, invited global virtual asset trading platforms to move to Hong Kong for a virtual asset service provider license.