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- 1 Hong Kong is seeking public opinion about stablecoin regulations.
- 2 On June 1, the new licensing regime became effective.
Hong Kong intends to introduce stablecoin regulations and the authorities have launched a public consultation procedure. The Hong Kong Monetary Authority (HKMA) has launched a public discourse to explore different opinions on the scheduled regulations for this class of digital assets.
Consultation Procedure for Stablecoin Regulations Begins in H.K.
The procedure is aimed at inviting opinions from distinguished academics, operators of digital currency, and the general residents of the Fragrant Harbor. The deadline set for it lies in the third quarter of 2023. H.K. is slowly emerging as the new hub for the crypto industry, especially in the Asia-Pacific region.
The Undersecretary for Financial Services and Treasury in Hong Kong, Joseph Chan Ho-lim, argued about the benefits of the consultation process. He further argued that the results of the procedure would act as guiding lights in introducing a regulatory framework for stablecoins, which is scheduled to be released in 2024.
When the algorithmic stable cryptocurrency TerraUSD lost its peg to the U.S. dollar in 2022, it eventually led to the collapse of the Terra Ecosystem. Hong Kong regulators found this to be the perfect opportunity to start building regulations for stablecoins. In due course of time, the regulators published the paper on the topic in early 2023.
As per the published paper, the central bank will adopt a “risk-based and agile approach” for the regulation of this specific class of digital assets. Additionally, the central bank will attempt to ensure that volatility would not disrupt the financial system.
HKMA’s discussion paper suggests that stablecoins should be pegged to fiat currencies or assets with high liquidity. Furthermore, it suggests that the algorithmic versions must be avoided at all costs. The paper argues about the regulation of issuers like banks and proposes that stablecoin issuers should be added to the watch list of the HKMA.
To instill uniformity across the board, the regulators confirmed that the directives would work on the principle of “same activity, same risk, and same regulations.”
The HKMA played a major part in the Financial Stability Board’s (FSB) regulations regarding stable cryptocurrency in 2022. Apart from having a keen interest in regulating this digital asset class, the agency is also interested in introducing the Central Bank Digital Currency (CBDC) once the early results are positive.
The Fragrant Harbor has plans to regulate stablecoins and provide new guidelines for the investors of digital currencies in the region. On June 1, retail investors were allowed to trade major cryptocurrencies on the exchanges licensed in the country. This was amid the inception of the new licensing regime for service providers.
The developing economies which are part of the G20 are worried about the usage of stablecoins and view them as a threat to the current monetary policy, while developed economies have raised their concerns regarding the regulations surrounding them.
The Financial Stability Board (FSB) has permitted certain flexibility for nations to implement rules in their respective countries as they see fit.
For crypto exchanges operating in Hong Kong, the new regulations came into effect on June 1. Crypto firms must have a registration to operate in the region, and this scenario brings a major turning point for the industry. With clear and implementable regulations, the Fragrant Harbor could emerge as the next big hub for the crypto industry.
With a background in journalism, Ritika Sharma has worked with many reputed media firms focusing on general news such as politics and crime. She joined The Coin Republic as a reporter for crypto, and found a great passion for cryptocurrency, Web3, NFTs and other digital assets. She spends a lot of time researching and delving deeper into these concepts around the clock, and is a strong advocate for women in STEM.
