Hong Kong-Backed Stablecoin Imminent? Crypto Advocates Urge Government To Launch Own Coin To Challenge USDC, USDT

As Hong Kong aims to be the next global hub for cryptocurrency, enthusiasts have urged the government to launch a stablecoin backed by the region's dollar to minimize dependence on U.S. dollar and to challenge the stablecoins' multi-billion-dollar market capitalizations currently dominated by Tether (USDT) and USD Coin (USDC).

The proposal was made by the Hong Kong University of Science and Technology vice president for institutional advancement Wang Yang, founder of smartphone software firm Meitu Cai Wensheng, Hong Kong Blockchain Association honorary chair Lei Zhibin and doctoral student Wen Yizhou.

"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, enhancing transaction efficiency, reducing transaction costs, improving current payment systems, and further strengthening Hong Kong's fintech capabilities," the proposal read, as translated by Chinese crypto reporter Colin Wu.

"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 added.

It also mentioned that the current plan of the Hong Kong government to allow and encourage private institutions to issue HKD stablecoins is "too conservative" since it does not align with the ambitions of the government to bolster its digital economy.

The crypto advocates believe that having a local stablecoin would help with de-dollarization.

Furthermore, the proposal suggests that the government should back the stablecoin with the region's foreign exchange reserves which, as of March 2023, was around $430 billion, "significantly surpassing" the collective market capitalization of USDT and USDC which is at around $120 billion.

"HKDG backed by the SAR [special administrative region] government will have higher credibility and lower risk, [...] especially as the credibility of USDT remains in question, and USDC has recently experienced severe discounts, the proposal read.

"The risks borne by the government-issued HKDG are significantly lower than those of the Hong Kong Dollar stablecoin issued by private institutions," it further said.

Tether warmly welcomed the proposal and noted that competition will allow a healthy environment and will lead to the development of solutions that will further advance the broader ecosystem.

"We all have the shared goal of driving stablecoin adoption and innovation and competition leads to the development of solutions that enhance the overall ecosystem," a Tether spokesperson told International Business Times.

"Each project strives to differentiate itself by providing unique benefits to users, driving innovation and providing users with more choices and control over their transactions," the spokesperson added, before saying that "fostering competition allows a healthy and diverse market environment."

In May, Hong Kong Monetary Authority (HKMA) Chief Executive Eddie Yue Wai-man clarified that while the city is opening its doors to cryptocurrency companies from all over the world, it does not intend to ease up its virtual assets regulations. Instead, it will ensure that such regulations would be tight.

"We will let the industry develop and innovate. We will let them create the ecosystem here, and that actually brings a lot of excitement," the executive noted, before adding, "But that doesn't mean light-touch regulation."

Last month, Hong Kong allowed cryptocurrency exchange platforms in the region to offer services to regular customers, which is under the region's new licensing program.

(The story has been updated to add comments from the Tether spokesperson.)