According to a proposal published on Wu Blockchain, the Hong Kong government could consider issuing a stablecoin called HKDG, which is pegged to the Hong Kong dollar. The proposal also includes opportunities and challenges in case Hong Kong decides to launch its own stablecoin.
It is proposed that issuing a stablecoin will create a bridge between finance and blockchain, increase transparency and convenience for transaction cash flows, as well as enhance current payment systems and boost Hong Kong’s economy.
With Hong Kong’s foreign exchange reserves of around $430 billion as of March – significantly more than the combined market cap of USDT and USDC of $110 billion, a government-backed stablecoin will have higher credibility and lower risk, the proposal noted.
While HKDG will benefit from government regulation and transparency of blockchain technology, it still has potential risks, including legal and regulatory challenges, international disputes over transactions potentially tied to illicit funding and hacks. Anyway, the risks of a government-backed stablecoin will still be lower than those of stablecoin issued by private institutions.
In addition to orienting HKDG to become a competitor to USDC and USDT, its backing fiat HKD is also proposed to challenge USD’s dominant position in the crypto space. HKDG also helps to provide additional liquidity for government projects, facilitate the digitization of traditional assets and promote innovation.
Hong Kong is on the way to becoming the blockchain center of the region with the enactment of numerous crypto-friendly policies recently. Hong Kong allowed individual investors to trade crypto from June 1 and even set up its own task force for Web3 development.