July 6, 2023
By Sharan Kaur Phillora
A research paper authored by academics from the Hong Kong University of Science and Technology, in collaboration with Web3 industry stakeholders, has called for government backing for a Hong Kong Dollar (HKD)-backed stablecoin named HKDG.
Here’s what we know:
The paper posits that a privately issued HKDG would struggle to compete with the large market caps of existing USD-backed stablecoins. Despite this, the authors believe HKDG could challenge the dominance of the USD in Hong Kong’s $430 billion foreign reserves.
The research further suggests that the stablecoin could facilitate the digitization of other assets, promoting liquidity and greater financial inclusion. The coin could also enhance the cross-border liquidity of the Hong Kong dollar, boost transaction efficiency, and offer the benefits of blockchain transparency under government regulation, thereby protecting users.
While the Hong Kong Securities and Futures Commission (SFC) is developing stablecoin regulations and has recently introduced new rules for cryptocurrency service providers, it does not yet include stablecoins. Stablecoins are pivotal to the crypto-fiat connection, used by traders to purchase other crypto assets quickly. An HKD stablecoin, thus, could spur the region’s crypto trade volume.
However, regional banks are hesitant to support crypto exchanges, a stance contradicting Hong Kong’s comprehensive yet feasible digital currency framework. Following allegations against Binance, the world’s biggest crypto exchange, and the collapse of Hong Kong-based exchange FTX, local banks are cautiously engaging with the digital asset industry.
Traditional banks, including HSBC and Standard Chartered, have declined to serve crypto companies in Hong Kong. Amid political tensions and incidents of past financial malfeasance, bank executives are striving to balance legal liabilities while remaining in good standing with local regulators.
Without support from these trusted financial institutions, the paper concludes, widespread institutional adoption of cryptocurrencies, including a potential HKD stablecoin, could prove challenging.
About the author
Sharan Kaur Phillora’s thirst for knowledge has led her to study many different subjects, including NFTs and Blockchain technology – two emerging technologies that will change how we interact with each other in the future. When she isn’t exploring a new idea or concept, she enjoys reading literary masterpieces.
