Hong Kong government should consider launching its own stablecoin, the HKDG, backed by its foreign exchange reserves.
That's according to a proposal put forward by web3 expert and Hong Kong University Vice Chancellor Wang Yang; angel investor Cai Wensheng; BlockCity founder Lei Zhibin; and Ph.D. student Wen Yizhou.
The move is seen as a way to compete with existing stablecoins like Tether
and USD Coin.
The authors of the proposal, according to The Block, underscore the significance of stablecoins as a link between traditional finance and the digital economy. A stablecoin pegged to the Hong Kong Dollar could enhance financial inclusiveness, increase transaction efficiency, cut costs, improve payment systems, and bolster the fintech capabilities of the Chinese special administrative region, they say.
The government's current strategy of permitting private institutions to issue stablecoins lacks ambition and could lead to a restricted market share, they argued, citing the success of Singapore's XSGD stablecoin, issued by Xfers with a market cap of $6.6 million.
A government-backed HKDG stablecoin would be supported by Hong Kong's foreign exchange reserves. As of March, the reserves hover at approximately $430 billion. This would offer greater credibility and lower risk than the combined market cap of over $110 billion for USDT and USDC, the proposal states.
The proposal does recognize potential risks, including legal and regulatory hurdles, technical risks, and short-term exchange rate fluctuations.
However, the risks associated with a government-issued HKDG are lower than those of stablecoins issued by private institutions.
The authors contend that HKDG would benefit from government regulation and the transparency offered by blockchain technology.
The paper also suggests that HKDG could assist Hong Kong in making significant strides towards de-dollarization and challenging the U.S. Dollar's dominance in the crypto ecosystem.
The experts believe it could also provide additional liquidity for government investment projects, facilitate the digitization of traditional assets, promote financial innovation and competitiveness, and increase transparency.
