The Hong Kong authorities have maintained a comparative progressive approach towards crypto and digital assets.
In a recent revelation, it has been found that the authorities are looking for new designs for a central bank digital currency (CBDC) to propose to issue it in the form of a stablecoin backed by the government.
In a media interaction on January 5, Wu Jiezhuang, a member of the Legislative Council of the Hong Kong Special Administrative Region, shared his opinions on the topic. He believes that turning the Hong Kong digital dollar (e-HKD) into a stablecoin would benefit the adoption of new technologies like Web3.
Further, he said that the option of developing e-HKD into a stablecoin has the potential to address the risks associated with virtual assets in Web3 efficiently.
According to the lawmaker, such a design of the Hong Kong digital dollar would help authorities gain investors’ trust in the Web3 industry and further also help in better protection of users from issues like hacks.
Referring to the failures of several stablecoin projects last year, which also caused a domino effect on the crypto market, the lawmaker acknowledged that the market’s stablecoins are subject to the government’s supervision. He said:
“The stablecoins currently available in the market are all issued by some private companies and are not subject to government supervision.”
Wu Jiezhuang also opined that stablecoins could be connected to decentralized finance (DeFi) for better access in the Web3 ecosystem. In his words:
“The Hong Kong government can consider whether the issuance of digital Hong Kong dollars can be connected with decentralized finance and become an important infrastructure component of the virtual asset trading platform.”
Besides his role as a member of the Hong Kong Legislative Council, Wu Jiezhuang is also a founding member of G-Rocket. G-Rocket is a startup accelerator that intends to lure thousands of Web3 businesses to shop in the city-state over the next three years. Along with him, Jonny Ng Kit-Chong, another member of the Hong Kong Legislative council, is the firm’s founding member too.
Wu Jiezhuang is one of the latest government officials highlighting the potential benefits of the combination of CBDC and DeFi. In September last year, Thomas Moser, a governing board member at the Swiss National Bank, said that a CBDC could provide more stability to DeFi and reduce its development risks.
Earlier, Mikkel Morch, executive director at the digital asset hedge fund, doesn’t have to be a competitor to a private or decentralized cryptocurrency. Still, a CBDC can potentially diminish the role of private stablecoins.
However, in October last year, Todayq News reported that the Hong Kong Monetary Authority conducted an experiment called Aurum, demonstrating that private stablecoins can coexist with central bank digital currencies (CBDC), even if the intermediate operators fail.
According to the report, Project Aurum has accomplished several “ground-breaking” feats. Also tested is a system that uses private stablecoins rather than CBDC, similar to how modern card payments use commercial bank money backed by central bank guarantees.