A policy has been proposed to Hong Kong, seeking the region to come up with a stablecoin that is backed by its foreign reserves. More specifically, Wang Yang, Lei Zhibin, Cai Wensheng, and Wen Yizhou have pitched an idea to the Hong Kong Special Administrative Region (SAR) to do a bit more to promote the digital economy better.
The policy proposal, or the pitch, as one may choose to call it, is indeed in line with the mission statement of Hong Kong, wherein the region has stated that it wants to establish a global hub for the digital economy. Needless to say, this includes cryptocurrencies and Web3 as major components. It is behind the US and Singapore; however, the capability is strikingly astonishing. Hong Kong has all the possible means to cement its position across the world in the digital economy.
An official word from the authorities is awaited, but the policy has discussed the proposal in detail.
For instance, the policy has highlighted that the benefits that slip to the region via stablecoin are freedom of exchange, stability, cross-border liquidity, high security, and openness. These are on top of boosting inclusiveness and efficiency in the existing traditional financial structure.
Private institutions are currently in the vanguard. The fact that the Singapore Dollar Stablecoin by Xfers is trailing far behind USDT and USDC in terms of market capitalization suggests that this may not be sufficient. The respective values of each are $83 billion and $28 billion. XSGD, also known as Singapore Dollar Stablecoin, is underperforming at $6.6 billion.
Hong Kong already has higher aspirations and determinations. Hence, issuing a government-backed stablecoin is a more sensible way to grow in the digital economy.
In Hong Kong, the stablecoin will provide government regulations and immutable transparency as regional benefits. Additional advantages include the digitalization of traditional trillion-dollar assets, improved risk management, accelerated financial innovation, and increased competitiveness in the digital era.
Blockchain leadership could barely come close to a challenge. As of March 2023, the foreign reserves stood at $430 billion. This is much higher than the combined market capitalization of the two famous stablecoins: USDT and USDC. Since the government will back it, credibility and risk will have a manageable acceptance, with credibility being higher and risk being lower.
Moving to the phase of de-dollarization is what many countries are attempting to do. The US has ruled the currency market for a long time, and participants are exploring alternatives to make trades easier without having the USD in between. This is a direct challenge to the American dollar and remains a major leap being looked into by most economies.
If issued, the Hong Kong stablecoin is likely to provide additional liquidity for government investment projects.
We advocate the SAR government, said Wang Yang, Lei Zhibin, Cai Wensheng, and Wen Yizhou in the concluding portion of the pitch, adding that it will promote innovation in FinTech, improve competition, and optimize the utilization of their foreign reserves.