A recent proposal in a policy paper recommends the launch of a government-backed stablecoin called HKDG in Hong Kong. This stablecoin would be created to compete with established digital currencies like USDT and USDC. The policy paper, authored by Wang Yang, vice chancellor of the Hong Kong University of Science and Technology, along with other notable individuals, highlights the importance of stablecoins in connecting traditional finance with the growing digital economy.
The proponents of the policy argue that a stablecoin pegged to the Hong Kong Dollar would bring numerous benefits, including improved financial inclusion, enhanced transaction efficiency, reduced costs, and stronger payment systems. They believe that such a stablecoin would also bolster fintech capabilities within the region.
In contrast to the government’s current plan, which allows private entities to issue stablecoins, the authors express concerns that this approach may result in limited market share. They cite Singapore’s XSGD stablecoin, issued by Xfers, as an example, which has a market cap of only $6.6 million compared to the combined $110 billion of USDT and USDC.
To address potential risks, such as legal and regulatory challenges, technical difficulties, and short-term exchange rate volatility, the authors acknowledge the need for caution. However, they argue that the risks associated with a government-backed HKDG stablecoin would be lower than those associated with stablecoins issued by private entities. They also emphasize that a government-backed stablecoin would benefit from better regulation and increased transparency facilitated by blockchain technology.
Furthermore, the authors propose that the HKDG stablecoin could contribute to the de-dollarization of Hong Kong’s economy and challenge the dominance of the U.S. Dollar in the cryptocurrency world. They believe it could provide additional liquidity for government investment projects, support the digitization of traditional assets, foster financial innovation and competitiveness, and enhance transparency.
This proposal aligns with Hong Kong’s recent declaration of its intention to position itself as an international hub for the cryptocurrency industry. The establishment of a web3 task force is part of Hong Kong’s efforts to cultivate a thriving cryptocurrency ecosystem in the region.