The Hong Kong Monetary Authority (HKMA) has kicked off a public consultation on the issuance of stablecoins.
Stablecoins are digital assets that are referenced to other assets. Typically affiliated with fiat currency, stablecoins may also be paired with other assets such as gold. Today, most stablecoins are utilized for onboarding to crypto exchanges and as a place to park funds to hold value. But other benefits are also available – such as providing a easy path to guard against inflation by moving money from a local currency to a reserve currency like the dollar. Stablecoins may also be viewed as updated payment railes – faster and less expensive than traditional payment rails.
The HKMA states:
“In view of the important roles played by stablecoins in the Web3 and virtual asset (VA) ecosystem, and the rising interconnectedness between the traditional financial system and the VA markets, the Government considers that a regulatory regime should be introduced for fiat-referenced stablecoin (FRS) issuers. Bringing FRS issuers into the regulatory remit under a risk-based and agile approach will facilitate a proper management of the potential monetary and financial stability risks, and provide transparent and suitable guardrails with the increased prevalence of VAs.”
Last year, the HKMA issued a “Discussion Paper on Crypto-assets and Stablecoins.” It appears that Hong Kong is determined to provide a regulatory environment for entities to issue stablecoins.
Eddie Yue, Chief Executive of the HKMA, stated they are supportive of financial innovation but acknowledge the importance of incorporating sufficient regulations to safeguard these innovations.
“We are therefore introducing a sandbox arrangement alongside the public consultation to establish channels for the exchange of views between the HKMA and market players who wish to establish stablecoin issuance business in Hong Kong with a view to facilitating the implementation of the regulatory regime,” said Yue.
ZA Bank, one of the first digital banks in Hong Kong, issued a statement on the consultation. Ronald Iu, CEO of ZA Bank, said they welcome the consultation regarding the proposed regulation and appreciate the creation of the sandbox. Iu said they expect this will boost confidence in retail investors and help establish Hong Kong as a global hub for Web3.
“As a technology-driven bank, our ambition is to be the preferred banking partner of Hong Kong’s Web3 ecosystem, guided by our ‘Banking for Web3’ vision. We have already provided essential business banking services to over 80 Web3 companies and have served as the banking partner for licensed virtual asset trading platforms (VATPs) in Hong Kong. Leveraging our relevant experience, we are more than willing to offer support and assistance to both the authorities and the industry,” said Iu.
Iu predicted that digital assets will emerge as a significant asset class in the future.
Other jurisdictions are also pushing towards stablecoin regulation – like the EU. In the US, Congress was working on stablecoin legislation, but there was insufficient bipartisan support to move the bill forward.
The consultation period will last until 29 February 2024. The document is available here.