In an effort to assert dominance in the blockchain sector and drive the development of a digital Hong Kong dollar, a group of researchers led by Cai Wensheng, vice president of the Hong Kong University of Science and Technology, has proposed the creation of an HKD stablecoin.
The proposal aims to challenge the industry-leading stablecoins Tether (USDT) and Circle (USDC), to increase financial innovation and challenge dominant players.
Enhance Hong Kong’s leadership in the blockchain sector
In Wu Blockchain Report shared on Twitter, the researchers argue that the issuance of a stablecoin pegged to the Hong Kong dollar would not only consolidate its position as a leader in the blockchain industry, but also accelerate the development of a HKD.
By improving transaction efficiency, lowering costs and strengthening existing payment systems, the proposed stablecoin would strengthen Hong Kong’s fintech capabilities, as outlined in the policy proposal.
The current government’s strategy, limited to encouraging private institutions to issue stablecoins pegged to the Hong Kong dollar, has been considered too conservative by the researchers.
Instead, they advocate the creation of a stable currency called the HKDG, backed by Hong Kong’s substantial foreign exchange reserves, which stood at around US$430 billion as of March 2023.
This move aims to challenge the dominance of stablecoin giants while promoting financial innovation and de-dollarization. The proposed HKD stablecoin would reportedly offer a range of benefits, including improved efficiency and inclusion within its financial system.
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With its stability, freedom of exchange, high security, transparency and cross-border liquidity, stablecoin would support a wide range of financial innovations.
In addition, it could act as a catalyst to strengthen the local currency and promote Hong Kong’s fintech capabilities, the researchers believe.
Regulatory considerations and the Asian landscape
While Hong Kong is currently at the forefront of crypto regulation in the region, the researchers’ proposal highlights the need to establish a regulatory framework specifically for stablecoins.
With other Asian countries, such as Japan and South Korea, increasing their regulatory efforts and exploring digital asset frameworks, they want the country to maintain its competitive edge and lead the race to become a regional hub for digital assets.
As the Hong Kong researchers are advocating the introduction of a government-backed HKD stablecoin, the landscape of stablecoins in the crypto market may witness a significant change.
By challenging the dominance of USDT and USDC, Hong Kong can assert its position as a global fintech leader while promoting financial innovation and de-dollarization.
Featured image from Coingeek, chart from TradingView.com