Hong Kong considers turning CBDC into a stablecoin using DeFi

Last Updated on 42 mins by John Piper


Hong Kong’s Financial Sector regulator, the Securities and Futures Commission has said that they are actively creating a framework to allow exchange-traded funds (ETFs), based on digital assets that are openly traded in Hong Kong.


A Hong Kong official stated that public stablecoins are a better option to begin with Web3 than private ones. As they look for new ideas for a central bank digital money, the Hong Kong authorities are currently considering issuing a CBDC as a stablecoin.


A CBDC is a digital asset that is issued by a central banking. They are digital representations issued by a central bank of a country’s national currency. They may be backed by an asset or fiat money. In either case, their value will depend on the government’s promise. CBDCs, a digital version of fiat currency, has unique capabilities and functions because it is completely digital. A large number of important nation-states use fiat currency today.

Why does Hong Kong want to introduce stablecoins?


Wu Jiezhuang, a member of the Legislative Council for Hong Kong Special Administrative Region, believes that turning the e-HKD into a stabilizecoin would make it easier to adopt cutting-edge technology such as Web3.


Wu Jiezhuang, in an interview with China Blockchain News January 5, stated that converting e-HKD to a stablecoin will solve the problems associated with virtual assets in Web3. A design for the Hong Kong digital currency would help the government win investors’ trust in Web3 and protect users from cyberattacks, according to the member.

Wu Jiezhuang responded to the collapse in multiple stablecoin projects within 2022 , which had a cascading effect on the cryptocurrency market. He stated that the stablecoins currently available in the market were all issued by private companies and are not subject of government oversight.


The legislator also suggested that the stablecoin could be linked to Decentralised Finance (DeFi), which would make it easier for users to access Web3 ecosystems. The Hong Kong government might also consider linking the creation of digital Hong Kong dollars to DeFi, which could make them a key component of the platform’s infrastructure to trade virtual assets.

Does Hong Kong support cryptocurrencies?


There has been some confusion in the past about cryptocurrencies and possible regulations in Hong Kong. Many people are happy to learn about the Hong Kong Securities and Futures Commission and Hong Kong Monetary Authority’s recent circular. It still needs to addressed, especially with retail investors.


Hong Kong’s position as a major global financial center means that it is expected to continue to be a significant market for cryptocurrency. Much will depend on the position taken by other jurisdictions and upcoming legal changes.


Hong Kong may allow ordinary investors to trade cryptocurrencies and crypto-exchange-traded funds in order to restore its fintech center status and compete with Singapore. The government released a declaration on virtual assets that outlined its plans to launch Stablecoins via the Web3 space.

Hong Kong will introduce ETFs


Julia Leung (Deputy Chief Executive Officer at the SFC), stated that more information about the strategy will be available in a circular to be released in January 2023.

ETFs are a pooled security that tracks specific assets. These assets could be stocks or bonds that cover a particular industry, one commodity or other investments, according to finance experts. Initial ETFs will only be available from Chicago Mercantile Exchange, which trades Bitcoin ($BTC), futures, and Ethereum ($ETH).


According Leung:

The SFC is actively seeking a licensing framework for ETFs that give investors exposure to common virtual assets.


Fintech Week 2022 in Hong Kong, Hong Kong’s most prestigious cryptocurrency event, officially starts Monday, January 2, 2023. This event marks Hong Kong’s return to crypto-hub status from fiat.


Leung also discussed the SFC’s regulatory considerations regarding tokenised securities. He also asked whether ordinary investors should be allowed to participate in the investment markets, in addition to ETFs-based crypto futures.

Why CBDCs are being introduced in countries

As blockchain technology develops, many countries have started to introduce CBDCs.


Wu Jiezhuang founded G-Rocket, which is a startup accelerator that will recruit 1,000 Web3 companies to the city-state in the next three-years. He also serves as a member of the Hong Kong Legislative Council. In 2016, he co-founded G-Rocket with Jonny Ng Kit-Chong, a member of the Hong Kong Legislative Council. Wu Jiezhuang, the latest government official to highlight the benefits of CBDC and DeFi.


Thomas Moser is a member the Swiss National Bank’s board of directors. He indicated that DeFi might benefit from a CBDC to provide additional security and lower the risk associated with its expansion in September 2022.

Mikkel Morch (Executive Director of ARK36, a digital asset hedge company) said that a CBDC does not necessarily need to compete with a decentralised or private cryptocurrency. He also pointed out that personal stablecoins might be less important if a CBDC is in place.


The Securities and Futures Commission of Hong Kong issued a circular outlining conditions for organizations considering publicizing an exchange-traded fund (ETF). Initial trading will be allowed with Bitcoin and Ether by the regulatory body. The concern of crypto specialists is that Chinese influence could result in this decision being reversed at any time. It is not yet clear if this will have any significant impact on Hong Kong. It is clear that Web3 will play an important role in 2023 worldwide.

Coin Insider’s first article was entitled “Hong Kong Considers Turning CBDC into a Stablecoin Using DeFi”

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