Simply put
- The upcoming regulations will be implemented in August, necessitating a Stablecoin issuer license to operate in the city.
- Treasury Secretary Paul Chang has raised concerns that stubcoins might undermine local currency and trade.
- Analysts suggest that high capital and reserve requirements could impede global players like Circle and Tether from entering the market.
Hong Kong has expressed ongoing support for Stubcoin as it readies to roll out a new regulatory framework for Fiat Reference Issuers in August.
This past Saturday, finance secretary Paul Chang connected the development of Stablecoins in Asia with the goal of using local currencies for trade rather than depending on the US dollar.
In a blog post following a visit to Tianjin and Beijing, he mentioned at the World Economic Forum’s “Davos in the Summer” that “Stablecoins offer a cost-effective alternative to the traditional financial system.”
He added that these innovations “could potentially transform payments and capital market activities, including cross-border transactions.”
Such comments mirror the broader objectives of China’s efforts to internationalize the yuan.
Since becoming the largest trading nation in 2017, China has seen an increased demand for yuan-denominated transactions, solidifying Hong Kong’s role as a key offshore RMB center.
New laws set to take effect on August 1 aim to create a licensing regime for Fiat reference stubcoin issuers, all under Hong Kong’s monetary authorities’ supervision.
Compliance requirements will be stringent, addressing areas like asset management, value redemption, fund segregation, and anti-money laundering controls.
Set a high bar
Only licensed entities will be allowed to issue or sell periodic forms to retail investors. While a more global framework enables the possibility of multicurrency issuance, analysts argue that the law imposes a high barrier to entry.
Sean Lee, co-founder of a digital asset technology firm, noted, “The capital requirements are nearly three times higher than what’s seen in Singapore.”
He regarded this approach as progressive but likely to attract domestic firms rather than global giants like Circle and Tether.
Lee also remarked that due to the mandates for local reserves and operational presence, it seems improbable that major international firms would directly issue. Instead, he anticipates that the professional use of offshore stubcoins will persist through distribution partners.
Retail adoption may be limited, considering Hong Kong’s established domestic digital payment infrastructure. Yet, prospects for cross-border business use remain favorable.
“Don’t underestimate the offshore CNH angle. That’s a key reason for the Chinese administration’s strong backing,” Lee explained, alluding to the offshore yuan traded outside mainland China.
However, even with the potential for cost savings, Stablecoin use hasn’t quite outpaced current options.
“When all costs are accounted for, the total expenses aren’t necessarily lower compared to established services like Wise,” Lee highlighted, pointing out liquidity issues in various currencies.
Other fintech leaders, such as Airwallex CEO Jack Zhang, exhibit skepticism, reflecting broader industry sentiment.
“I’m unsure how Stablecoin will reduce fees. The path from Stablecoin to the recipient’s currency tends to be pricier than the FX Interbank market,” he stated at the beginning of the month.
Nonetheless, Lee remains hopeful that this situation will evolve. “Ultimately, the transaction costs for Stablecoin—factoring in FX—will decrease,” he asserted.
