On July 4, the Vice President of Hong Kong University of Science and Technology, Cai Wensheng, penned a proposal for an HKD stablecoin. The policy proposal was also made by Wang Yang, Lei Zhibin, and Wen Yizhou but was not endorsed by the Hong Kong government.
The academics have a vision for a local currency stablecoin that competes against industry-dominant Tether (USDT) and Circle (USDC).
A Proposal for Hong Kong to Issue a Hong Kong Dollar Stablecoin to Compete with USDT/USDC
By Vice President of Hong Kong University of Science and Technology and Chairman of Meitu
— Wu Blockchain (@WuBlockchain) July 4, 2023
Hong Kong Govt Stablecoin Preferred
According to Chinese journalist Wu Blockchain, the proposal for the issuance of an HKD stablecoin would help to solidify Hong Kong’s leadership in the blockchain sector.
Other reasons justifying the proposal include propelling the local currency, enhancing transaction efficiency, reducing transaction costs, improving current payment systems, and “further strengthening Hong Kong’s fintech capabilities.”
“Moreover, the Hong Kong Dollar stablecoin can enhance the efficiency and inclusiveness of Hong Kong’s financial system; its stability, freedom of exchange, high security, openness, and cross-border liquidity can support a wider range of financial innovations.”
The proposal noted that the government’s current plan is limited by allowing and encouraging private institutions to issue HKD stablecoins.
“This measure is too conservative,” they said, because it doesn’t align with the government’s ambitions to promote the digital economy.
Therefore, the academics suggest the government issues a stablecoin called HKDG backed by Hong Kong’s foreign exchange reserves which were around US$430 billion as of March 2023.
A local stablecoin would also help with de-dollarization, they said.
However, any central bank-issued asset would be highly controlled and potentially used as a surveillance tool as it is in China, which has oversight over Hong Kong.
Hong Kong launched new regulations for virtual asset service providers last month and is now working on establishing a regulatory framework for stablecoins.
Asia Rushing to Regulate
Hong Kong is currently leading the way on crypto regulations in the region, but other Asian countries are catching up.
Japan has ramped up its crypto regulations and KYC policies as it competes to become a regional digital asset hub.
South Korea passed the Virtual Asset User Protection Act last week, and Singapore’s central bank has proposed new crypto exchange rules to keep customer assets in trust.