HKMA, Hong Kong’s de facto central bank, proposes regulating fiat currency-backed stablecoins with rules similar to banks

The Hong Kong Monetary Authority is seeking public views on rules that would license and supervise stablecoin activities like banks

Usually pegged to the US dollar, the US$150 billion stablecoin market is growing as a means of payment, necessitating regulatory framework, says the HKMA

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Stablecoins such as tether are backed by fiat currencies like the US dollar. Photo: Shutterstock Images

Published: 9:09pm, 12 Jan 2022

The Hong Kong Monetary Authority (HKMA) has launched a consultation seeking public feedback on regulating stablecoins, as it aims to counter the growing risks such fiat currency-backed digital tokens pose to the city’s financial system.

In proposing to regulate the US$150 billion global stablecoin market, which includes tether and USD Coin that are pegged to the US dollar, the HKMA has acknowledged that stablecoins could become a widely accepted means of payment.

This is in contrast to its long-held position that bitcoin, the world’s largest cryptocurrency with a market capitalisation of US$809 billion, is not a means of payment, but a mere “commodity”.

“There is growing interest of banks and their customers in exploring opportunities in investing in crypto-assets,” the HKMA said in a discussion paper released on Wednesday, adding that there is a need to ensure that stablecoins are appropriately regulated before they are marketed to the public.

The HKMA is mulling rules to regulate stabelcoins. Photo: Sam Tsang

The HKMA’s proposal to regulate stablecoins comes just three months after the city’s de facto central bank announced plans to explore its own digital currency, the e-HKD, for retail use.

While a central bank would fully back its own sovereign digital currency, including its settlement, many observers are sceptical about whether stablecoins are genuinely backed “one-to-one” by a US dollar reserve as claimed by the private entities behind them.

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