Column
Why a "One-Size-Fits-All" Approach to Stablecoin Issuance Fails Given Diverse Fiat Currency Characteristics ——With Commentary on Hong Kong Dollar Stablecoin Issuance Model
Summary: Following the enactment of Hong Kong’s Stablecoin Ordinance, I argued in articles such as "The Current Method of Issuing HKD Stablecoins Needs Restructuring" that the current framework carries inherent flaws (details at Chainless.hk). This article further elaborates from the perspective of fiat currency diversity, addressing reader inquiries. The core thesis is: Fundamental differences in credit foundations, ...
Following the enactment of Hong Kong’s Stablecoin Ordinance, I argued in articles such as "The Current Method of Issuing HKD Stablecoins Needs Restructuring" that the current framework carries inherent flaws (details at Chainless.hk). This article further elaborates from the perspective of fiat currency diversity, addressing reader inquiries. The core thesis is: Fundamental differences in credit foundations, circulation mechanisms, and value stability across fiat currencies necessitate tailored issuance methods for stablecoins pegged to them—rejecting a "one-size-fits-all" approach. Particularly concerning is the model of issuing stablecoins atop already pegged currencies (e.g., HKD), which may amplify systemic risk.
Cryptocurrencies: The Frontier Laboratory of Monetary Evolution
In just fifteen years, the crypto ecosystem has spontaneously evolved dozens of forms—memecoins, asset-backed tokens, transactional coins, stablecoins, equity tokens, governance tokens, NFTs—effectively compressing millennia of monetary evolution from primitive barter to modern finance. This high-intensity, high-freedom experimental field has generated invaluable insights into monetary essence, trust formation, and value capture, establishing it as the frontier of human financial research and practice. Ignoring lessons from this "testing ground" risks regulatory policies misaligned with digital finance’s future. Financial practitioners must engage directly to address knowledge gaps in cryptocurrency.
Fiat-pegged stablecoins—among crypto’s most successful applications—demand design logic that transcends issuance mechanics to deeply comprehend anchor assets and their risks. The Hong Kong Stablecoin Ordinance reflects insufficient understanding of the stablecoin-anchor relationship.
Stablecoins are transactional tokens; fiat-pegged variants are but one subtype. Unlike fiat, cryptocurrencies face high "identity" ambiguity due to multifunctional designs (e.g., Ethereum serving as both medium of exchange and quasi-equity). Rigidly applying legacy regulations like "collective investment schemes" could stifle innovation—the U.S. exemption approach offers a reference. While simpler than crypto, fiat currencies still require "quality" discernment.
Discerning Fiat Currencies: A Spectrum of "Quality"
Understanding fiat stablecoins begins with recognizing vast differences among their anchor assets:
1. Fiat Currency: Issued by national/regional authorities, legally mandated as tender, and backed by state credit. The strongest form is standard currency.
2. Standard Currency: The benchmark measuring other currencies’ value. Under floating exchange rates, it requires:
- Value Stability: Low, controlled inflation (theoretically <2% annually).
- Global Free Convertibility: Open capital accounts.
- Dominance in Trade/Finance: Significant share in global settlement.
- Reserve Currency Status: Major holding in central bank reserves.
The USD is today’s paramount standard currency, backed by U.S. comprehensive power, deep financial markets, and global consensus. The EUR follows, then GBP/JPY. The RMB’s settlement volume is substantial but capital controls prevent free global convertibility, disqualifying it as a standard currency.
3. Pegged Currency: A currency anchored to a strong fiat (e.g., HKD pegged to USD via a Linked Exchange Rate System). Colloquially termed stablecoins.
4. Scrip/Voucher: Internally circulating tokens within closed ecosystems.
Tencent’s Q Coin exemplifies scrip. RMB issuance principles resemble Q Coin—albeit within a vastly larger, more complex ecosystem. Q Coin circulates solely within Tencent; external use is cumbersome. Unlike HKD’s explicit peg, RMB references a basket of currencies with semi-marketized adjustments. Its global circulation (<$3T) represents <1% of broad RMB M2. Stripped of its central bank mandate, RMB—circulating primarily within China’s ecosystem—functions akin to Q Coin: large-scale ecosystem scrip.
Risks of a "One-Size-Fits-All" Stablecoin Issuance Model
Fundamental differences in fiat characteristics make it unfeasible—and risky—to mimic USD stablecoin issuance logic for all fiat stablecoins. The USD is a standard currency; others are not. HKD is not a standard currency.
Core Problem with HKD Stablecoins: Dual-Layered Risk Structure
HKD itself is already a pegged fiat currency—its stability reliant on the Linked Exchange Rate System. Issuing a new "HKD stablecoin" claiming a 1:1 HKD peg adds a "stablecoin peg layer" atop the existing “fiat peg layer" (HKD). This creates a chain:
> Stablecoin → Pegged to HKD → Pegged to USD,
Any peg fluctuation or break—whether stablecoin/HKD or HKD/USD—propagates and amplifies risk down this chain, effectively adding leverage to the monetary system. (Detailed analysis in “Will Introduction of the Stablecoin Act Trigger a Financial Tsunami?)”
Divergence from Practice and Logic
In mature crypto ecosystems, dominant stablecoins (e.g., USDT, USDC) directly peg to the USD. No large-scale project successfully issues stablecoins atop a pegged currency like HKD. Tether’s CNHT (RMB stablecoin) directly pegs to RMB. HKD’s layered stablecoin model lacks large-scale validation.
Conclusion
Monetary diversity necessitates pluralistic stablecoin solutions. Ignoring fundamental fiat differences—especially by layering stablecoins atop pegged currencies—lacks successful precedents. Hong Kong’s HKD stablecoin approach faces this core challenge.
Returning to monetary essence, deeply studying diverse fiat traits and crypto practical experience, and designing issuance frameworks truly aligned with anchor-asset risk profiles, forms the bedrock of a trustworthy future digital financial system.
For deeper analysis of stablecoin bailouts, credit mechanisms, and naming conventions—the three core issuance issues—see "Will Introduction of the Stablecoin Act Trigger a Financial Tsunami?". Optimal design principles are proposed in "The Current Method of Issuing HKD Stablecoins Needs Restructuring".
Explore related articles at Chainless.hk:
- "Stablecoins – America’s Path to Defending Financial Hegemony"
- "When Stablecoins Tear Down Bank’s Interest Margin Moats"
- "Conceptual Confusion Caused by Hong Kong’s Stablecoin Regulations and Clarification Thereof"
- “The Regulation of Cryptocurrency”
By Zhu Weisha
Tags:
Link: Why a "One-Size-Fits-All" Approach to Stablecoin Issuance Fails Given Diverse Fiat Currency Characteristics ——With Commentary on Hong Kong Dollar Stablecoin Issuance Model [Copy]
