The Hong Kong Monetary Authority has opened the door to a new era by granting the city’s first two regulated stablecoin issuance licenses to HSBC and Anchorpoint Financial within the scope of digital currency regulation. Anchorpoint Financial operates as a consortium established under the leadership of Standard Chartered, one of the world’s leading financial institutions, and including Animoca Brands. HSBC and Standard Chartered are among the well-established banks that can currently print a significant portion of the money in circulation in Hong Kong.
Process and regulation conditions starting with new licenses
The regulation, which came into force in Hong Kong and is considered among the most stringent authentication standards globally, paves the way for the implementation of bank-backed stablecoin models. According to the new law, licensed stablecoins can only be transferred to wallets with approved identity. Additionally, an additional reporting requirement called the “travel rule” applies to transfers of 8,000 Hong Kong Dollars and above.
It is stated that in this process, transfers will only be allowed to wallets that are not blacklisted or approved, in compliance with the regulation in the “smart contracts” of the stablecoin. This prevents unrestricted transfers, for example, of popular tokens pegged to the US dollar.
Eddie Yue, CEO of the Hong Kong Monetary Authority, stated in his statement following the decision that by implementing regulated stablecoins, current pain points in financial transactions can be solved and significant contributions can be made to both individuals and companies.
We expect stablecoin issuers within the scope of regulation to start operating in line with their plans, explore growth opportunities and manage risks in a balanced manner. Thus, the healthy development of digital assets in Hong Kong will be supported.
Parallels with Hong Kong’s historical monetary system and new economic vision
The fact that HSBC and Standard Chartered have the authority to print banknotes in Hong Kong goes back to the historical roots of money management in the city. In Hong Kong, where private banks have played an important role in the money supply since the 1800s, this structure is now moving to the blockchain-based “digital money” era with the step of stablecoin.
The fact that only two of the 36 applications evaluated by the monetary authority were accepted was an indication of the importance given to risk management and reserve quality. Additionally, in line with the regulations, the city’s “central bank digital currency” initiative focused on retail use is not given priority. With the pilot study completed in October giving poor results in terms of retail applications, the stablecoin project carried out by banks came to the fore.
Bill Winters, CEO of Standard Chartered, shared the view that stablecoins and tokenized deposits in Hong Kong could create the new infrastructure of digital commerce and provide a new means of payment that can be used in cross-border transactions.
It was evaluated that Hong Kong’s stablecoin and tokenized deposit initiatives have the potential to create the infrastructure of a new era in digital commerce.
It is known that the stablecoin market has reached a size of approximately 310 billion dollars and all leading stablecoins in terms of market value are dollar-pegged. On the other hand, stablecoins indexed to other currencies such as the euro or yen cannot find a place in the top rankings.
The Hong Kong administration aims to use Hong Kong Dollar-pegged stablecoins, which are regulated and issued by banks, in regional trade transactions. However, it remains unclear whether a stablecoin based on a currency other than the dollar can create a strong network effect.
