News Analysis
The push by Hong Kong’s Legislative Council to authorize a diverse range of fiat-referenced stablecoins is raising concerns about the stability of its long-standing Linked Exchange Rate System (LERS) pegged to the U.S. dollar.
Fiat-referenced stablecoins are a type of cryptocurrency designed to maintain a consistent value by being pegged to a government-issued currency. The potential introduction of Chinese yuan-backed stablecoins, in particular, is drawing scrutiny due to the risks they may pose to Hong Kong’s financial stability and the acceleration of capital outflows.
This year, both Hong Kong and the United States have made strides in developing regulatory frameworks for stablecoins. Unlike the United States, which focuses primarily on U.S. dollar-denominated “payment stablecoins,” Hong Kong’s stablecoin ordinance, passed in May and going into effect on August 1, allows stablecoins pegged to multiple fiat currencies. This broader approach could create uncertainty about the stability of Hong Kong’s currency peg….
Hong Kong’s Stablecoin Drive May Pave Way for Digital Yuan, Undermining US Dollar
