Hong Kong Dollar Peg Unaffected by Stablecoin Market Growth, Says HSBC

According to Foresight News, HSBC has stated that the growth of the stablecoin market will not impact the Hong Kong dollar's linked exchange rate system, although it may still pose challenges to Hong Kong's financial market. When a Hong Kong dollar stablecoin is created, buyers will pay with fiat Hong Kong dollars, which issuers will then deposit into reserves. These reserves can include short-term bank deposits, overnight reverse repos, recognized debt securities, dedicated investment funds, and other assets approved by the Hong Kong Monetary Authority (HKMA). Assuming the reserves are held in Hong Kong dollars, issuing stablecoins merely transfers the currency from the buyer's wallet to the issuer's reserves, keeping the supply of Hong Kong dollars in the system unchanged and leaving the linked exchange rate system unaffected. However, if capital outflows are significant enough to push the USD/HKD exchange rate to the upper limit of its band (7.85 HKD per USD), the exchange rate could be affected. Nonetheless, as long as the HKMA maintains sufficient foreign exchange reserves to fully cover the monetary base, the issuance of stablecoins and related reserve management will not alter the Hong Kong dollar's peg mechanism or weaken the HKMA's ability to maintain the peg.