Report: Proposed Hong Kong dollar stablecoin to compete with USDT and USDC

Since opening its doors to the cryptocurrency industry last month, Hong Kong has wasted no time. A recent proposal is to create a Hong Kong dollar stablecoin to compete with U.S. dollar-denominated stablecoins.

On July 4, Cai Wensheng, vice president of the Hong Kong University of Science and Technology, wrote a Hong Kong dollar stable currency proposal. The policy proposal was also proposed by Wang Yang, Lei Zhibin and Wen Yizhou, but it was not endorsed by the Hong Kong government.

The academics' vision is to create a native currency stablecoin to compete with the industry-dominated Tether (USDT) and Circle (USDC).

Hong Kong government’s preferred stablecoin

Chinese journalist Wu Blockchain said that the proposal to issue a Hong Kong dollar stablecoin would help cement Hong Kong’s leadership in the blockchain space.

Other reasons that justify the proposal include promoting the development of a local currency, improving transaction efficiency, reducing transaction costs, improving existing payment systems, and “further strengthening Hong Kong’s fintech capabilities.”

"In addition, the Hong Kong dollar stablecoin can enhance the efficiency and inclusiveness of Hong Kong's financial system; its stability, transaction freedom, high security, openness and cross-border liquidity can support broader financial innovation."

The proposal states that the government's current plan is limited to allowing and encouraging private institutions to issue Hong Kong dollar stablecoins.

They said "the measure is too conservative" because it does not match the government's ambitions to boost the digital economy.

Scholars have therefore suggested that the government issue a stablecoin called HKDG backed by Hong Kong's foreign exchange reserves, which stand at around $430 billion as of March 2023.

Local stablecoins would also help de-dollarization, they said.

However, any central bank-issued assets would be tightly controlled and could be used as a surveillance tool, as in China, which has surveillance over Hong Kong.

Hong Kong introduced new regulations for virtual asset service providers last month and is currently working to establish a regulatory framework for stablecoins.

Asia rushes to regulate

Hong Kong currently leads the region in cryptocurrency regulation, but other Asian countries are catching up.

Japan has stepped up its cryptocurrency regulation and KYC policies in its quest to become a regional digital asset hub.

South Korea passed the Virtual Asset User Protection Act last week, and Singapore's central bank proposed new rules for cryptocurrency transactions to guarantee the credibility of customers' assets.