Challenge Accepted: Hong Kong Government in Discussion to Launch Stablecoin to Disrupt Tether, USD Coin, Binance USD, and TrueUSD

• Blockchain advocates suggest the issuance of a Hong Kong government stablecoin (HKDG), offering a potential rival to Tether and USD Coin.
• The proposed HKDG is viewed as a strategy to solidify Hong Kong’s leadership in the blockchain sector and improve the region’s fintech capabilities.

Hong Kong’s Move Towards a Government-Issued Stablecoin

In a revolutionary proposal, key individuals involved in financial innovation have urged the Hong Kong government to issue a stablecoin pegged to the local currency, the Hong Kong dollar. This move has the potential to challenge the dominance of established stablecoins like Tether and USD Coin, thereby bolstering the city’s presence in the digital economy.

The proposal comes from 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 doctoral student Wen Yizhou. These advocates argue that the creation of a Hong Kong Dollar Government (HKDG) stablecoin can significantly enhance transaction efficiency, lower transaction costs, and amplify Hong Kong’s fintech capabilities.

The Case for a Government-Backed Stablecoin

“Issuing a stablecoin pegged to the Hong Kong dollar not only helps to solidify Hong Kong’s leadership in the blockchain sector but also propels the progress of the digital Hong Kong dollar,” the proposal states. The authors underscore that a Hong Kong Dollar stablecoin could potentially increase the efficiency and inclusiveness of Hong Kong’s financial system while supporting a broad spectrum of financial innovations.

The report criticized the government’s current plan to encourage private institutions to issue stablecoins pegged to the Hong Kong dollar, labeling it as “too conservative” given its intention to promote crypto and blockchain. Moreover, the authors maintain that a government-backed HKDG will have more credibility and lower risk compared to privately issued stablecoins, especially in light of certain controversies surrounding Tether and recent discounts on USD Coin.

The report further suggests that the introduction of HKDG could challenge the dominance of the United States dollar, offer additional liquidity for government projects, and simplify risk monitoring for officials. Although potential risks, such as legal and regulatory challenges, international disputes, and hacking threats are acknowledged, the report concludes that

“the risks borne by the government-issued HKDG are significantly lower than those of the Hong Kong Dollar stablecoin issued by private institutions.”

The proposal coincides with Hong Kong’s concerted efforts to position itself as a hub for digital innovation. In June, the government announced the formation of a task force to oversee Web3 development, with more than 80 digital asset and blockchain companies reportedly considering setting up shop in the Special Administrative Region.

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