The Hong Kong Monetary Authority (HKMA) has released a warning saying that stablecoins posed a risk to the stability of the Hong Kong dollar. The institution released the warning during a discussion paper for its central bank digital currency (CBDC).
HKMA issues warning on stablecoins
Hong Kong has joined the list of jurisdictions showing an increased interest in launching CBDCs. The interest in CBDCs can be attributed to the rapid growth of the private cryptocurrency sector, deemed highly risky.
The “e-HKD: A Policy and Design Perspective” discussion paper said, “In a scenario where the use of these stablecoins becomes widespread… the role of the domestic currency as the single unit of account could be undermined.”
The HKMA mentioned the risks posed by stablecoins and how these private cryptocurrencies could undermine the integrity of the payment system because of failures in the operational and financial sectors. These stablecoins could also promote capital flight during periods of financial recession, undermining the control of the government over the local economy.
Hong Kong commenced its official study about a CBDC in June last year. However, the HKMA has assessed the benefits of issuing a wholesale CBDC since 2017. The authority focuses on retail-focused CBDCs that target the general public and can be used as an alternative to fiat currencies in making daily transactions.
The HKMA has not given any commitment to producing a CBDC. The recent discussion paper has invited various industry leaders and the public to give detailed feedback about a CBDC and the potential benefits and risks of creating an e-HKD.
The HKMA has also invited feedback about the design of the CBDC. The design features being considered include interoperability, the right rCBDC issuance mechanism, potential use cases, legal framework, privacy and consumer protection measures.
CBDC progress in China
Mainland China is making quite the progress with its CBDC plans. This month, the People’s Bank of China announced it would expand trials for the digital yuan in six different cities. The trial phase for the digital yuan has been launched in 10 major cities.
China has made quite the progress with its CBDC plans. The country is among the few that have reached the pilot phase in launching a CBDC. The positive progress of China’s digital yuan development has also created discussions about how the CBDC can replace the dominance of the US dollar.
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