In a recently issued discussion paper about its retail central bank digital currency, e-HKD, the Hong Kong Monetary Authority (HKMA) warned that stablecoins might weaken the Hong Kong dollar.
Many in the crypto industry believe that the rise of private-sector stablecoins has sparked interest in developing central bank-issued digital currencies. This discussion paper seems to support that point of view.
“With continuing improvements in stablecoins, it cannot be ruled out that a popular stablecoin may emerge,” the HKMA noted in a discussion paper titled “e-HKD: A Policy and Design Perspective” released on Wednesday.
“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 authority also warned that such stablecoins might jeopardize payment integrity owing to operational or financial problems, or allow for easier capital flight during a financial crisis, undermining central banks’ influence over the local economy.
The Hong Kong Monetary Authority originally stated its plans to investigate a retail-focused central bank issued digital currency in June 2021 as part of its “Fintec 2025” agenda, while the authority has also been considering the benefits of releasing a wholesale CBDC since 2017.
CBDCs are for everyday transactions and are aimed for the general population
Wholesale CBDCs are only granted to financial institutions and are designed to make transactions faster, cheaper, and safer.
The central bank has made no commitment to introduce a digital currency, with the most recent discussion paper only encouraging industry leaders and consumers to submit additional comments on the proposed rCBDC’s possible problems and benefits.
It also seeks input on a suitable rCBDC issuance process, interoperability between large-value and retail payment systems, privacy and data protection, regulatory considerations, private sector participation, and potential use cases.
The central bank-issued digital money continues to gain traction over the border in mainland China. The People’s Bank of China (PBOC) said earlier this month that it will expand its digital yuan trial to six more locations, in addition to the existing ten major pilot cities.
Meanwhile, the Philippines government stated on Wednesday that it will pursue its own pilot project for a wholesale central bank digital currency, dubbed Project CBDCPh, that it hopes will be used for cross-border payments, equities securities payments, and intraday liquidity (ILF).
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