While the Western worldhow to regulate stablecoins, Hong Kong is forging ahead with a regulatory framework for cryptocurrencies pegged to traditional financial assets.
The Hong Kong Monetary Authority (HKMA) is in the process of seeking comments from the public regarding stablecoins and aims to introduce a regulatory framework by the end of 2024, said the city’s Undersecretary for Financial Services and the Treasury, Joseph Chan Ho-lim,.
While the U.S. government isin the wake of TerraUSD (UST)’s collapse and FTX’s implosion, the crypto community in China is heralding Hong Kong’s increasing policy clarification regarding the nascent asset class.
On June 1, Hong Kong officially set in motion ain which exchanges must obtain licenses in order to operate in the city. Under the new framework, licensed exchanges will be able to let retail investors trade certain major cryptocurrencies, which have been speculated to be Ether and Bitcoin.
The policy development is a major milestone for the region that has ventured in, where crypto trading is illegal. The welcoming stance o Hong Kong, some have argued, is a result of the historical role the city .
Hong Kong’s stablecoin regulation has been a long time coming. In, the HKMA issued a discussion paper on crypto-assets and stablecoins. Then in , the HKMA published the conclusion to the discussion paper, which confirmed that the HKMA would take a “risk-based and agile approach” in regulating stablecoins.
As it worked on the city’s own crypto regulations during 2022, the HKMAin developing regulatory standards and recommendations on stablecoins, especially those of the Financial Stability Board. The FSB is an international body that monitors and makes recommendations regarding the global financial system, and in the web3 realm, it has been described as the in framing global crypto rules.
The proposed rules laid out in theare, of course, subject to change, but it offers an early glimpse into the city’s stance on stablecoin regulation. For one, the HKMA proposed to prioritize the development of a regulatory framework for stablecoins as a means of payment and start with regulating stablecoins pegged to fiat currencies, since they are more likely to pose imminent financial stability risks.
In addition, the paper maintains that stablecoins must be fully backed by high-quality and high-liquidity assets at all times. Stablecoins that derive their value based on arbitrage or algorithm will not be accepted, which effectively rules out algorithmically stabilized tokens like UST. Stablecoin holders should also be able to redeem the stablecoins into fiat currencies within a reasonable period, the paper says.