Author: Carl, Techub News
The Hong Kong dollar stablecoin is becoming a hot topic in the Hong Kong web3.0 field.
On July 3rd, Wang Yang, Vice President of Hong Kong University of Science and Technology and Chief Scientific Advisor of the Hong Kong Web3.0 Association, angel investor Cai Wensheng, and Lei Zhibin, founder of Block City Web3.0 Technology Co., Ltd., jointly released a policy proposal entitled “Proposal for Hong Kong’s Issuance of Hong Kong Dollar Stablecoin Backed by Foreign Exchange Reserves” (hereinafter referred to as “Policy Proposal”), which has sparked a lot of discussion.
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The article proposes that the Hong Kong government’s plan to only allow and encourage private institutions to issue Hong Kong dollar stablecoins is too conservative and cannot match the large-scale plans of the SAR government to promote digital assets and the digital economy. It strongly urges the SAR government to issue Hong Kong dollar stablecoins (HKDG) backed by Hong Kong’s foreign exchange reserves.
Fang Hongjin, a blockchain technology and application expert and co-chairman of the Hong Kong Blockchain Association, said that Hong Kong should quickly introduce regulatory policies for stablecoins to encourage commercial institutions to issue compliant stablecoins, including Hong Kong dollar stablecoins and offshore RMB stablecoins.
1 Hong Kong dollar stablecoin issuance can refer to USDC
Currently, the most popular stablecoins on the market are US dollar stablecoins, such as USDT and USDC, and stablecoins anchored to other fiat currencies account for a smaller proportion. According to coinmarketcap.com, the market capitalizations of USDT and USDC are 83.3 billion and 27.7 billion US dollars, respectively, ranking third and fifth in the cryptocurrency market. The two together account for more than 85% of the entire stablecoin market.
The “Policy Proposal” points out that Hong Kong dollar stablecoins issued by private institutions may be difficult to obtain a significant market position and may eventually become a marginalized product, unable to affect the dominant position of US dollar stablecoins. Hong Kong must have higher goals and determination on this issue. Therefore, it strongly urges the SAR government to issue Hong Kong dollar stablecoins backed by Hong Kong’s foreign exchange reserves.
Meng Dinglin, partner and chief technology expert of Extreme Simplified Currency, told Techub News that it is appropriate for the Hong Kong government to launch Hong Kong dollar stablecoins, which can solve pain points such as SWIFT payment delays and will give rise to many new business models. Stablecoins backed by the government will have greater application prospects.
However, there are many skeptics on social media about the proposal of the Hong Kong government issuing Hong Kong dollar stablecoins.
Fang Hongjin, a blockchain technology and application expert and co-chair of the Hong Kong Blockchain Association, told Techub News, “I am very much looking forward to the Hong Kong government issuing stablecoin regulatory policies as soon as possible, but it is not appropriate for the Hong Kong government to issue stablecoins.”
Fang Hongjin believes that the Hong Kong SAR government has the right to mint coins and should issue digital currencies (CBDCs) in the form of digital Hong Kong dollars. “Stablecoins, on the other hand, are digital certificates issued based on collateral such as legal tender, similar to traditional financial commercial bills, and should be issued by commercial institutions in Hong Kong under the supervision of the Hong Kong government.”
On June 12th, Hong Kong’s Deputy Secretary for Financial and Treasury Bureau, Chen Haolian, said that the Hong Kong Monetary Authority had conducted public consultations on the launch of stablecoins and would gradually establish a regulatory framework with the goal of launching them by the end of 2024.
In terms of technology, the Hong Kong government’s issuance of Hong Kong dollar stablecoins will also face some challenges.
Fang Hongjin believes that it is not appropriate for the Hong Kong government to issue Hong Kong dollar stablecoins on public chains such as Ethereum, and that it is more appropriate for commercial institutions to issue them; if they are issued on private chains, not only will the technical difficulty be great, but there will also be conflicts between the decentralized Hong Kong dollar stablecoins and the centralized digital Hong Kong dollars issued by the same entity.
Previously, there were several Hong Kong dollar stablecoins issued by private institutions.
Tang Yi, co-chair of the Hong Kong Blockchain Association HKBA.club, told Techub News that as a Hong Kong citizen, he hopes to see compliant stablecoins in Hong Kong that make it easier for people to live their lives. Currently, Hong Kong people mainly use USDT stablecoins, followed by USDC, and other stablecoins are rare.
“Hong Kong dollar stablecoins have been issued by private companies, but they are not popular.” Tang Yi revealed.
According to media reports, in 2018, the digital banking service platform CoinBank teamed up with the Cayman Islands-based Anchor to launch the Hong Kong dollar-anchored stablecoin HKDT.
In 2019, OneCash issued the Hong Kong dollar-anchored stablecoin HKC based on public chains such as TRON, ETH, and PlatON, and TrustToken issued the anchored Hong Kong dollar stablecoin TrueHKD (THKD) based on the Binance chain.
However, these stablecoins are low in both scale and market acceptance, and are hard to find in the entire cryptocurrency market. Tang Yi said that USDC is one of the best stablecoins in terms of compliance, and Hong Kong dollar stablecoins can refer to USDC to some extent. The relevant government of the state of New York in the United States issued a license to circle.com, which issued the US dollar stablecoin USDC. USDC’s asset endorsement is audited by the US compliance auditor Grant Thornton on a regular basis, and is publicly transparent.
Jiang Zhaosheng, a senior researcher at Ouke Cloud Chain Research Institute, said that USDC is subject to legal supervision in various states in the United States, and third-party verifiers conduct regular audits of the code and finance. In terms of internal risk management, four sections of “Risk Warning”, “Fraud Management”, “Monitoring Plan”, and “Complaint Management” are established. In terms of operation mechanism, USDC stores its mortgaged fiat assets in accounts of the Federal Deposit Insurance Corporation of the United States and other institutions for decentralized storage, all of which are stored in independent accounts designated for the benefit of USDC holders.
2 Digital Hong Kong dollars and Hong Kong dollar stablecoins may complement each other
Digital Hong Kong dollars may be another variable.
The “Policy Suggestions” pointed out that the issuance of a stablecoin by Hong Kong that issues its own currency can promote the progress of digital Hong Kong dollars, improve transaction efficiency, reduce transaction costs, and improve the existing payment system.
Hu Zhenbang, CFO of BC Technology, previously stated in an interview with the media that it is estimated that the possibility of stablecoins denominated in Hong Kong dollars is not too high. The Hong Kong government has clearly stated in the white paper that it will consider developing digital Hong Kong dollars. This path will be somewhat similar to digital RMB, and Hong Kong dollar stablecoins may compete with digital Hong Kong dollars to some extent.
BC Technology is a Hong Kong-listed company, and its digital asset trading platform OSL obtained Type 1 and Type 7 licenses under the supervision framework of the Hong Kong Securities and Futures Commission in 2020.
As early as October 2021, the Hong Kong SAR government released the technical white paper “e-HKD: A technical perspective” for retail-level central bank digital currency, exploring the technology related to digital Hong Kong dollars.
On May 18, 2023, the Hong Kong Monetary Authority announced the launch of the “Digital Hong Kong Dollar” pilot program, and 16 companies including Alipay (Hong Kong), HSBC Bank, and Bank of China (Hong Kong) were selected for the first round of trials.
Tang Yi also told Techub News that there is a certain competitive relationship between the Cyberport Dollar and the Hong Kong Dollar stablecoin.
Regarding the competitive relationship between the two, Fang Hongjin holds an optimistic attitude. He believes that in addition to the competitive relationship, the Hong Kong Dollar stablecoin and the Cyberport Dollar can complement each other to some extent.
“The Cyberport Dollar is suitable for circulation within Hong Kong and can be applied to the retail market, while the Hong Kong Dollar stablecoin is not restricted by geography and is more suitable for cross-border trade and service payment settlements. Because it does not directly represent local legal currency, it will not involve issues such as currency sovereignty of other countries.” Fang Hongjin said.
Jiang Zhaosheng, a senior researcher at Eureka Cloud Chain Research Institute, said that the Hong Kong Dollar stablecoin is an important infrastructure for promoting the localization of Web3 in Hong Kong, and the market has a high enthusiasm for the launch of the Hong Kong Dollar stablecoin. However, there are almost no descriptions of the Hong Kong Dollar stablecoin in the official statement of the Hong Kong government. More is to encourage innovative practices such as the Cyberport Dollar and tokenized deposits. At the same time, the Hong Kong government is accelerating the formulation of stablecoin regulatory policies, and the short-term demand for Hong Kong Dollar stablecoins by the Hong Kong government may not be strong, and the possibility of compliant Hong Kong Dollar stablecoins appearing is not high.
3 A good time to develop Hong Kong Dollar stablecoin
At present, 99% of the stablecoins circulating in the market are US dollar stablecoins. How to occupy the market with Hong Kong Dollar stablecoins and achieve the goal of de-dollarization is also a focus of attention.
The “Policy Recommendations” pointed out that as of March 2023, Hong Kong’s foreign exchange reserves totaled as much as US$430 billion, which is significantly higher than the total market value of USDT and USDC of US$120 billion. In contrast, HKDG endorsed by the SAR government will have higher credibility and lower risk. Especially when the credibility of USDT is still in doubt, and USDC has recently experienced a serious discount, HKDG has the potential to challenge the monopoly status of US dollar stablecoins and become a mainstream stablecoin in the blockchain and digital asset ecosystem.
Fang Hongjin values the liquidity and application scenarios of the Hong Kong Dollar stablecoin more. He said that liquidity is the most important thing, and everyone needs to work together to create more Hong Kong Dollar stablecoin application scenarios to make the Hong Kong Dollar stablecoin circulate.
Aside from a Hong Kong dollar stablecoin, Fang Hongjin believes that issuing an offshore RMB stablecoin in Hong Kong is an even more important option. As the Hong Kong dollar is pegged to the US dollar and has a linked exchange rate, and can be freely exchanged with each other in Hong Kong, the effect of the Hong Kong dollar stablecoin on “de-dollarization” is not significant.
“However, if the 2 trillion yuan offshore RMB is activated in the form of a stablecoin, it will play an important role in promoting cross-border payments and other fields. In the current economic situation, cross-border trade is very difficult, and most developing countries lack US dollars for cross-border payments, which is a good time to develop offshore RMB stablecoins. The Hong Kong SAR government should quickly introduce regulatory policies for stablecoins and encourage commercial institutions to issue compliant stablecoins,” said Fang Hongjin.
Jiang Zhaosheng suggested that the Hong Kong dollar stablecoin should circulate on virtual asset trading platforms licensed by the Hong Kong Securities and Futures Commission through non-market means, and attract more institutions and users through mechanism innovation to strive for greater development space. In addition, developing an interest-bearing Hong Kong dollar stablecoin may be a good choice, that is, using Hong Kong dollars as collateral assets and paying users all or part of the interest generated by the collateral to gain more trust and usage from institutions and users.