Hong Kong proceeds with stablecoin plans despite Beijing’s reservations

Hong Kong’s central bank is pushing ahead with plans to issue its first batch of stablecoin licenses in March, despite China’s long-standing opposition to cryptocurrency activities. But experts see Hong Kong’s stablecoin plans as a hedge rather than a reversal of Beijing’s position.

“We hope to be able to make a decision by March,” said Eddie Yue, chief executive of the Hong Kong Monetary Authority. said A meeting of the Legislative Council was held on February 2, according to an official translator, adding that the authority reviewed the first tranche of 36 stablecoin issuer applications.

Yue’s update follows plans to allow stablecoin issuance in Hong Kong reportedly discontinued by Beijing.

Stablecoins are cryptocurrencies designed to maintain relatively stable values ​​and reduce price volatility compared to other digital tokens by pegging them to assets such as fiat currencies or gold.

Hong Kong passed Stablecoin Regulation In May, licensing requirements were introduced for entities issuing stablecoins in the region or pegging them to the Hong Kong Dollar. The law came into force in August and the HKMA began accepting applications soon after.

Jordan Wain, policy advisory lead at Chainalytics, said stablecoins now account for more than half the value of transactions recorded directly on blockchains, making them “the center of the crypto ecosystem.”

One memoryThe HKMA cited cross-border payments or tokenized deposit systems for international banks as potential use cases for stablecoins in the region. Tokenized deposit systems refer to digital representations of customer deposits on blockchain networks, held within the traditional banking system.

Potential issuers such as payment technology company Payment Cards Group claim this Hong Kong dollar-backed stablecoins will enable “faster refunds, faster cross-border payments and more transparent exchange rates.”

According to Wain, a growing number of regulatory and financial institutions are exploring growth opportunities in stablecoins, pointing to Japan and Europe, which have already established regulatory frameworks for adoption.

Interest in Hong Kong’s licensing regime reportedly Including tech giants such as Alibaba-backed Ant Group and Chinese e-commerce firm JD.com.

But in October, Chinese regulators, including the People’s Bank of China, recommended against the plan, effectively halting all progress, according to the Financial Times newspaper. reportQuoting from sources familiar with the subject.

Although Hong Kong officially enjoys a degree of autonomy from Beijing under the “one country, two systems” principle, Beijing continues to exercise significant influence over major policy decisions.

However, unlike Hong Kong, Beijing has taken a conservative stance on crypto. Although China was once at the forefront of crypto trading and mining activities, regulators began tightening controls in 2013.

These restrictions resulted in a complete ban on crypto transactions in 2021, citing concerns about volatility and illegal activities.

recently report It found that stablecoins are the primary means used by Chinese organized crime to move illicit funds, with $44 million being transferred daily through complex networks.

Beyond crime risks, Beijing’s concerns center on monetary control, said Monique Taylor, an academic at the University of Helsinki.

According to Taylor, Beijing is likely concerned about the possibility of renminbi-linked financial instruments circulating beyond its borders and outside regulatory reach.

“Challenging stablecoins [Beijing’s] “We do not have state control over money, payments and capital flows, and so we are uneasy with China’s state-centered model of monetary governance that prioritizes surveillance and domestic financial stability,” Taylor told CNBC.

Beijing’s concerns also extend to the “dollarization of the digital asset economy” with fiat-backed stablecoins. USDT And US Dollar It is indexed to the US dollar.

Similar sensitivities emerged in Washington. US Treasury Secretary Scott Bessent told the Senate Banking Committee: on thursday He said he “wouldn’t be surprised” if Hong Kong’s push into digital assets was seen as an attempt to create an “alternative to American financial leadership.”

Taylor said Hong Kong’s planned licensing regime is designed as a limited experiment that allows Beijing to keep its options open, rather than a direct countermeasure to U.S. influence on crypto.

“There is little evidence that China is moving to reverse its ban on cryptocurrencies,” Taylor said, describing Hong Kong’s approach as “limited and cautious enforcement” and pointing to Beijing’s continued skepticism.

China strengthened that stance, with eight state regulators issuing a statement on Friday. joint statement It reaffirmed China’s ban on crypto activities, including the unauthorized issuance of yuan-backed stablecoins.

Wain said Hong Kong’s first licenses are also about the city “using its autonomy to prove that stablecoins can be appropriately regulated while continuing to play a central role in payments, tokenization and the city’s broader Web3 ambitions.”

While Taylor said this regulatory clarity would likely appeal to overseas investors looking to cash in on Hong Kong’s eventual stablecoin plans, he noted that Hong Kong was unlikely to allow a “liberalized crypto environment” to flourish.