While the Western world debates learn how to regulate stablecoins, Hong Kong is forging forward with a regulatory framework for cryptocurrencies pegged to conventional monetary belongings.
The Hong Kong Monetary Authority (HKMA) is within the means of searching for feedback from the general public concerning stablecoins and goals to introduce a regulatory framework by the top of 2024, stated the town’s Undersecretary for Financial Services and the Treasury, Joseph Chan Ho-lim, in response to native media.
While the U.S. authorities is toughening its stance on the crypto trade within the wake of TerraUSD (UST)’s collapse and FTX’s implosion, the crypto group in China is heralding Hong Kong’s growing coverage clarification concerning the nascent asset class.
On June 1, Hong Kong formally set in movement a brand new crypto regulatory regime during which exchanges should acquire licenses with a view to function within the metropolis. Under the brand new framework, licensed exchanges will be capable of let retail traders commerce sure main cryptocurrencies, which have been imagined to be Ether and Bitcoin.
The coverage improvement is a significant milestone for the area that has ventured in the other way as mainland China, the place crypto buying and selling is against the law. The welcoming stance o Hong Kong, some have argued, is a results of the historic position the town has performed as a sandbox for the remainder of China.
Hong Kong’s stablecoin regulation has been a very long time coming. In January 2022, the HKMA issued a dialogue paper on crypto-assets and stablecoins. Then in January 2023, the HKMA printed the conclusion to the dialogue paper, which confirmed that the HKMA would take a “risk-based and agile approach” in regulating stablecoins.
As it labored on the town’s personal crypto rules throughout 2022, the HKMA additionally participated in growing regulatory requirements and suggestions on stablecoins, particularly these of the Financial Stability Board. The FSB is a world physique that screens and makes suggestions concerning the worldwide monetary system, and within the web3 realm, it has been described because the “de facto leader” in framing world crypto guidelines.
The proposed guidelines specified by the dialogue paper are, in fact, topic to vary, however it provides an early glimpse into the town’s stance on stablecoin regulation. For one, the HKMA proposed to prioritize the event of a regulatory framework for stablecoins as a method of fee and begin with regulating stablecoins pegged to fiat currencies, since they’re extra more likely to pose imminent monetary stability dangers.
In addition, the paper maintains that stablecoins should be absolutely backed by high-quality and high-liquidity belongings always. Stablecoins that derive their worth based mostly on arbitrage or algorithm won’t be accepted, which successfully guidelines out algorithmically stabilized tokens like UST. Stablecoin holders also needs to be capable of redeem the stablecoins into fiat currencies inside an affordable interval, the paper says.