Stablecoin pleasure has gripped Hong Kong as the town prepares to launch a licensing system for the much less risky sort of cryptocurrency, however authorities warn in opposition to overplaying its future position in monetary methods.
The digital items have been touted as a less expensive, simpler option to perform financial transactions, and their recognition is hovering, with greater than US$270 billion in circulation worldwide.
Unlike the heady highs and lows of bitcoin, the worth of most stablecoins is saved regular by being linked to an present nationwide forex, primarily the greenback, or a commodity like gold.
Stablecoins are helpful internationally as a result of they permit quick, low-cost cross-border funds, useful in markets the place onerous forex is restricted, comparable to Argentina and Nigeria.
The tokens, purchased and bought on digital exchanges, are additionally used as a secure method for crypto traders to station their earnings, as a substitute of changing to money.
“The size of the stablecoin market has reached a level where the cash flows have geopolitical implications,” mentioned Paul Brody, international blockchain chief at consulting agency EY.
More than 99% of stablecoin property are in U.S. {dollars}, so for different international locations “if you’re not a player, you could find yourself frozen out”, Brody advised AFP.
The U.S. House of Representatives this month handed an act codifying stablecoin use, which Senator Bill Hagerty mentioned will “ensure the dominance of the U.S. dollar”.
Hong Kong’s personal stablecoin rules come in on Friday, a part of a push to place itself as an Asian crypto hub as U.S. President Donald Trump’s assist for the sector fuels a world resurgence.
“The opportunities are massive,” mentioned Rita Liu, whose cost firm is growing a Hong Kong dollar-denominated stablecoin in a government-run trial.
“There’s a wave of legitimising the digital asset industry… Hong Kong is trying to be at the forefront of that wave,” mentioned Liu, chief government of RD Technologies.
Crypto buying and selling has been banned since 2021 in mainland China, which sees it as a “bit too close to gambling”, Brody mentioned.
He and others suppose stablecoins may show extra acceptable to Beijing, which has experimented with its personal “e-yuan” central financial institution digital forex.
Officials might first need to see how issues go in the semi-autonomous territory of Hong Kong.
So far, “a few dozen institutions” have expressed curiosity in issuing stablecoins or requested extra data, Hong Kong Monetary Authority head Eddie Yue mentioned final week.
But he referred to as for the general public to “rein in the euphoria” over the brand new invoice, as “in the initial stage, we will at most grant a handful of stablecoin issuer licences”.
“Some discussion on stablecoins may be overly idealistic,” Yue warned, particularly round their “potential to disrupt the mainstream financial system”.
The hype can inflate firms’ inventory costs, he added, some extent echoed by Lily King of crypto firm Cobo.
“Some applications may be influenced by public relations strategies, as stablecoin-related news often drives market sentiment,” she mentioned.
RD’s Liu, a former senior supervisor at Chinese cost platform Alipay, feels that “some of it is fake hype, and some is real”, fuelled by “people’s hope in this industry”.
Stablecoins account for about seven % of the worldwide cryptocurrency market capitalisation, in response to CoinGecko.
If they ultimately change into “a mainstay of the plumbing” in finance, Hong Kong may get pleasure from one thing of a “first-mover advantage”, mentioned Jonas Goltermann at Capital Economics.
Japan and Singapore already regulate stablecoins, whereas South Korea is exploring the likelihood.
While stablecoin issuers often guarantee consumers their forex is backed up by real-world reserves, they aren’t risk-free, and generally deviate from their pegged worth attributable to market fluctuations, tech points or issues with the underlying property.
There can be the chance that stablecoins will change into “more of a niche product” if banks work out the best way to make their very own programmable cash, Goltermann mentioned.
“It makes sense for Hong Kong to try anything; it’s kind of on a declining path, for reasons that are not to do with technology. It’s mostly about the politics, and its relationship with China,” he advised AFP.
“It’s not like stablecoins are a silver bullet that can fix that. But that doesn’t mean it can’t help.”
