Hong Kong authorities will strive to create a conducive environment for the wide-ranging application of stablecoins in a bid to provide practical help for businesses to resolve cross-border payment issues, the city鈥檚 finance chief has said.
Financial Secretary Paul Chan Mo-po on Sunday reaffirmed the government鈥檚 efforts in applying fintech to resolve long-standing 鈥減ain points鈥 such as slow and costly cross-border payments, highlighting new stablecoin laws set to take effect on August 1.
鈥淪tablecoins can offer a cost-effective alternative outside the traditional financial system and have the potential to revolutionise payment and capital market activities, including cross-border payments,鈥 Chan said in his weekly blog.
鈥淭he government and financial regulators will strive to foster a favourable market environment 鈥 to encourage issuers to expand stablecoin applications into various scenarios. We aim to help resolve practical pain points for businesses and everyday citizens alike.鈥
Stablecoins are a type of cryptocurrency backed by a reference asset, usually fiat currencies such as the US dollar and the Hong Kong dollar.
Chan made the pledge after the government unveiled a policy blueprint on new digital assets last week, with the city seeking to cement its role as a global cryptocurrency hub while serving as a test bed for Beijing鈥檚 fintech aspirations.
The new Stablecoins Ordinance establishes a mandatory licensing regime for anyone who issues or offers fiat-referenced stablecoins in the city. Under the law, the Hong Kong Monetary Authority has the power to supervise stablecoin issuers, investigate violations and impose penalties.
Earlier this month, the US Senate passed a bill with bipartisan support to create a regulatory framework for stablecoins, which are increasingly used by cryptocurrency traders to move funds between tokens.
Observers said the legislation in Hong Kong would open up new possibilities for cross-border use of the digital yuan.
Hong Kong officials have also been working to accelerate their goals for tokenisation, which puts traditional assets on a blockchain.
The government plans to regularise the issuance of tokenised government bonds and encourage the tokenisation of a wider range of assets, including precious and non-ferrous metals and renewable energy projects.
Secretary for Financial Services and the Treasury Christopher Hui Ching-yu, meanwhile, emphasised that the adoption of stablecoins was not to get rich quickly but rather to encourage investors to come to Hong Hong Kong as the city had to prepare to secure its financial hub status.
鈥淩egardless of whether assets exist in digital or other forms, they are essentially human economic activities. So, the risks are very similar to, or even the same as, those in everyday mainstream financial activities,鈥 he told a TV programme.
鈥淲hat we need to do is make Hong Kong a place of choice at the financial level, so that global investors continue to place their funds here.鈥
He stressed that digital assets and related services would be regulated, including requiring issuers to maintain adequate reserves to ensure users could redeem their holdings within one business day, and that the value remained equivalent to the relevant fiat currency.
In his blog, Chan also said Hong Kong authorities would strengthen their collaboration with the Beijing-headquartered Asian Infrastructure Investment Bank (AIIB) through financial innovation amid a reshaping of the global political and economic landscape.
鈥淲e will strengthen our collaboration with the AIIB through financial innovation, such as issuing more currencies and bonds of different tenors, securitising infrastructure collateralised loans, and issuing catastrophe bonds,鈥 he said.
鈥淭hese efforts will support the funding needs for infrastructure and other developments in regional economies.鈥
Sources told the Post that the AIIB would open an office in Hong Kong to enhance the multilateral development lender鈥檚 fundraising power and expand its global presence, a move seen as bolstering strength for Hong Kong as an international financial centre.