By George Ward
As the debate over the impact of cryptocurrency on the traditional financial system continues to gain traction, a former bank executive has debunked fears that digital assets could hamper TradFi. A former Hong Kong central bank chief believes that crypto will not destroy the mainstream finance sector and that increased volatility will hinder some crypto assets.
No Value To Offer
In a recent interview, Norman Chan, a former senior official at the Hong Kong Monetary Authority (HKMA), stated that digital assets like Bitcoin could not be deemed as currencies because they offer no essential value and their prices fluctuate frequently.
According to him, Bitcoin can only be used for speculation because it does not meet the requirement to become a currency. Speaking of stablecoins, Chan noted that they have more use cases as they can be utilized to reduce transaction fees and improve trading efficiency.
However, the executive added that stablecoins could no longer replace the traditional fiat currency. Furthermore, the former central banker explained that decentralized finance (DeFi) is not up to par with the centralized financial system as DeFi offers no investor protection.
He cautioned against using stablecoins by stating that they would affect the efficacy of the fiat-based monetary strategy. He believes that the increasing adoption of stablecoins would compromise the steadiness of the financial system by displacing the regulatory models along with the trusted intermediaries.
However, Chan conceded that crypto and Web3 have the potential to change the way transactions are done, as evidenced by the rapid adoption of the technology by both startups and established traditional finance brands. For this to happen, the former banker explained that all crypto assets in circulation must meet regulatory conformity and have some degree of user protection.
Joining The Digital Yuan Movement
After the People’s Bank of China (PBoC) announced the launch of the pilot project for the digital Yuan, Hong Kong emerged as the first region to kickstart the test of the cross-border virtual currency. During the November announcement, the HKMA’s deputy chief executive, Howard Lee, revealed that the technical testing is in the second stage.
He noted that HKMA has expanded the scope and scale of the test with the number of commercial banks increased to four. With the digital Yuan, the PBoC aims to connect the pilot phase to the economic nerve centers of the nine Chinese southeastern cities dubbed the Greater Bay Area.
Hong Kong is also part of the nine cities despite not being in mainland China. However, it still has a special administrative status in the region with its political and economic system and currency.
The HKMA testing round, according to Lee, will see Mainland China and Hong Kong’s bond market connected with a possible adoption of the digital Yuan for transactions between the two jurisdictions.