Head of the Hong Kong Monetary Authority (HKMA) Eddie Yue says stablecoins could bridge the gap between traditional finance and crypto.
He made the statement following the joint release of a consultation paper today by HKMA, the Financial Services and the Treasury Bureau. The three agencies released the paper with the hope of gaining more powers to regulate the issuers of “fiat-referenced stablecoins.”
Yue said that the cryptocurrency market is still “far from maturity” and will likely continue to evolve.
“With that, stablecoins could become the interface between traditional finance and the virtual asset market,” Yue said in a statement today. “In a scenario where stablecoins become one of the preferred payment options by the general public, we should reasonably expect further integration between the digital payment ecosystem and the real economy, and whether the stablecoin is indeed ‘stable’ will then become ever more important.”
Stablecoins are cryptocurrencies that are more stable in their value than conventional cryptocurrencies which are highly volatile. They are relatively stable because they derive their value from something more stable, like fiat currencies such as the USD, precious stones like gold, or commodities.
The Hong Kong government seems to have realized the potential of cryptocurrencies and are considering using stablecoins to bridge the gap rather than throw out the entire innovation of crypto.
“The clear growth potential of virtual assets as an innovative technology has mostly been overshadowed by their price volatility, notably its rapid growth during the Covid-19 pandemic and subsequent collapse after a series of market events since early 2022, which hampered market confidence,” Yue said.
Is a CBDC Needed?
Yue also stated that the Hong Kong government is considering the introduction of a central bank digital currency (CBDC) as an option for transactions in the city. There are reservations on this though.
“In Hong Kong, there are multiple mediums of exchange that have been used extensively over time and proven effective, such as traditional bank deposits and stored value facilities,” Yue continued. “The HKMA and the banking industry have also been actively exploring the potential use cases of central bank digital currency and tokenized deposits.”
“An obvious question would be, with all these options, is there really a need for yet another alternative? We believe the answer lies in the hands of the end users who would ultimately decide which options work best for them,” he added.
Hong Kong’s approach towards CBDCs is entirely different from mainland China where the use of the CBDC under development is mainly mandatory. When fully developed, the government may use it to replace the use of cash for close monitoring and surveillance, something people in the west have kicked against.
Hong Kong’s Progress with Crypto
Although Yue called for licensing of companies interested in issuing stablecoins, the government definitely is interested in harnessing stablecoins to facilitate payments. This is another pro crypto development coming out of Hong Kong recently.
Just this week, the government said it was open to applications for spot Bitcoin ETFs. already, there are a number of futures Bitcoin ETFs in operation, and now it’s time for spot ETFs.
The government is confident that it will have much to work with from the U.S if the securities and exchange commission approves the spot ETF applications before it.
