Since a few days, the Chinese central bank currency, the digital yuan is available on a mobile application. Today, it is the central banking institution of Hong Kong that is seriously looking into the regulatory framework of stablecoins.
Hong Kong Monetary Authority opens discussion on crypto-assets and stablecoins
The Monetary Authority of Hong Kong (AMHK), which is the central banking institution, has just released a document called “The Paper”, which starts the discussion on the topic of crypto assets and stablecoins. This document aims to give food for thought as to the adequacy or adaptation, if any, of the existing regulatory framework to the growth of stablecoins.
Indeed, the paper notes that more and more institutional and retail investors are getting exposed to crypto-assets in order to benefit from a complementary exposure to traditional asset classes. In the medium term, it will be imperative to regulate this interconnection with the traditional financial system.
Finally, the AMHK indicated that it was interested in getting input from the public and the crypto industry on the scope of the regime applicable to stablecoins. To this end, it has identified 8 key questions mainly related to the types of activities to be regulated (issuance, redemption, reserve management, …) and the various regulatory requirements that could apply to stablecoins.
The AMHK’s vision on regulation
First, the AMHK considers that opinions on stablecoins are evolving, as they are seen more as “a broadly acceptable means of payment.” This, combined with the growth in their use in the real economy, is tending to increase the imperative for incorporation into the traditional financial system.
In addition, the AMHK identifies 4 types of potential risks to the use of stablecoins:
Risks to payment integrity: in the event of widespread acceptance of stablecoins, operational failures could have serious consequences ;
Risks to banking stability: banks may view stablecoins as a substitute for bank deposits;
Monetary policy risks;
Consumer protection risks: limited recourse in the event of operational disruptions related to stablecoins.
Based on these risks, the AMHK recommends initially to extend the regulatory scope to stablecoin payments. However, the AMHK is well aware that it will be necessary, in a second phase, to regulate the other cases of use of stablecoins.
One thing is certain, with this document, the AMHK asserts its position. It wants to be considered as the main regulator of stablecoins. However, for the time being, the topic in Hong Kong is not the adoption of a stablecoin as a national currency, as Burma is considering doing.