Hong Kong lawmaker wants to convert its planned CBDC to stablecoin

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As the digital asset ecosystem faces a massive upheaval in recent months, one Hong Kong lawmaker might have found an ingenious solution to save the local industry.

Wu Jiezhuang, a member of the special administrative region’s Legislative Council, in an interview with Dixin Financial News, spelled out several suggestions to restore investors’ confidence in virtual currencies. Wu suggested the wider virtual currency ecosystem could gain from converting the planned central bank digital currency (CBDC) to a stablecoin.

“The stablecoins on the market now are issued by private companies and are not subject to government regulation, and many worry about related risk,” Wu said.

He noted that the implosions that plagued the stablecoin market dealt an unpleasant blow to confidence, and by making the proposed CBDC operate as a stablecoin, a solution could be within grasp.

“Therefore, the Hong Kong government can consider whether the issuance of digital Hong Kong dollars can be connected with these decentralized finance and become an important infrastructure component of the virtual asset trading platform,” Wu said.

The lawmaker suggested that one of the ways to mitigate the inherent risks associated with digital assets is to launch a rating agency for virtual assets. Alternatively, Wu noted that the government might employ the services of established rating agencies to carry out “systematic” ratings of projects in the space, which would serve as a guide to investors.

Another option that Wu says will restore faith in the ecosystem is to create an alliance made up of leading players in the industry. He notes that the association will serve as a vanguard against marauding hackers by ensuring collaboration amongst participants.

The state of Hong Kong’s CBDC design

Hong Kong’s Monetary Authority (HKMA) is keen on launching its own CBDC in record time, spurred by the strides attained by China. The HKMA launched the trial of its CBDC in the last quarter of 2022 following multiple consultative rounds and research into the technological and regulatory concerns that could militate against a full-scale launch.

The central bank has already participated in multiple collaborative pilots with other countries to explore the use of its CBDCs for international transactions. The mBridge CBDC pilot with the Bank for International Settlements (BIS) was hailed as a massive success in Hong Kong, given the volume of funds transacted during the duration of the pilot and the number of participating financial institutions.

Despite the hastened approach, there are lingering fears that Hong Kong’s residents might view the CBDC as just one of several payment platforms jostling for customers.

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.

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