A group of crypto and blockchain advocates has recently published a report urging the Hong Kong government to introduce a stablecoin tied to the Hong Kong dollar. This proposed stablecoin, called HKDG (Hong Kong Dollar Government), aims to challenge the dominance of existing stablecoins like Tether (USDT) and USD Coin (USDC). The report was co-authored by 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, Honorary Chair of the Hong Kong Blockchain Association, and PhD student Wen Yizhou.
The authors argue that the government’s current approach of encouraging private institutions to issue stablecoins pegged to the Hong Kong dollar is too conservative compared to its overall goal of promoting crypto and blockchain. According to the report, Hong Kong’s foreign exchange reserves were approximately $430 billion as of March 2023, which exceeds the combined market capitalization of USDT and USDC, valued at around $120 billion. The authors claim that an HKDG backed by the government would possess higher credibility and lower risk, especially considering the ongoing concerns about the credibility of USDT and recent price fluctuations in USDC.
The report suggests several potential benefits that could arise from the introduction of the HKDG stablecoin. These include challenging the dominance of the U.S. dollar, providing additional liquidity for government projects, and facilitating better monitoring and assessment of risks by officials. However, the authors also acknowledge potential risks such as legal and regulatory challenges, international disputes related to transactions involving illicit funding, and the threat of hacking.
Compared to stablecoins issued by private institutions, the authors believe that the risks associated with a government-issued HKDG would be significantly lower. Given Hong Kong’s recent initiatives in the blockchain sector, such as the formation of a task force to oversee Web3 development and the increasing interest of various digital asset firms in establishing a presence in the region, the proposal for a government-backed stablecoin aligns with the country’s ambition to strengthen its position in the digital economy.
The introduction of an HKDG stablecoin could have far-reaching implications, from challenging established stablecoins to enhancing financial system efficiency and inclusiveness. However, it is essential to address potential legal, regulatory, and security challenges to ensure the success of such an initiative.