Hong Kong watchdog warns stablecoins could undermine HKD in CBDC paper

Published at: April 28, 2022

The Hong Kong Monetary Authority (HKMA) has warned that stablecoins could undermine the Hong Kong dollar in a recently released discussion paper about its retail central bank digital currency, e-HKD. 

The HKMA today issued a discussion paper, outlining the policy and design issues involved in the introduction of e-HKD, and encourages the public and industry to participate in the consultation and share their views. Find out more: https://t.co/GndjuZ2Pay pic.twitter.com/hRz2noD0Ps

— HKMA 香港金融管理局 (@hkmagovhk) April 27, 2022

Many in the crypto industry believe that interest in developing central bank digital currencies (CBDC) has been in response to the rise of private-sector stablecoins. This discussion paper appears to confirm that view.

“With continued developments in stablecoins, it cannot be ruled out that a popular stablecoin may eventually emerge,” wrote the HKMA as part of the “e-HKD: A Policy and Design Perspective” discussion paper released on Wednesday.

“In a scenario where the use of these stablecoins becomes widespread […] the role of the domestic currency as the single unit of account could be undermined.”

The authority also highlighted risks that such stablecoins could undermine payment integrity due to operational or financial failures or allow for greater ease of capital flight during a financial crisis period, which would undermine the control of central banks over the local economy.

The HKMA first announced its plans to study a retail-focused central bank digital currency in June 2021 as part of its “Fintec 2025” strategy. However, the authority has also been studying to merits of issuing a wholesale CBDC since 2017.

Retail CBDCs (rCBDCs) are targeted toward the general public and used for everyday transactions. Wholesale CBDCs are issued only to financial institutions and are aimed at making their transactions faster, less expensive, and more secure.

The monetary authority has made no commitment to introducing a digital currency. The most recent discussion paper merely invited industry leaders and consumers to provide additional feedback on the potential challenges and benefits of the proposed rCBDC.

It also asks for feedback on certain design considerations such as an appropriate rCBDC issuance mechanism, interoperability across large-value and retail payment systems, privacy and data protection, legal considerations, private sector participation and potential use cases.

Across the border in mainland China, the central bank digital currency continues to pick up steam. Earlier this month, the People’s Bank of China (PBOC) said it will be expanding its digital yuan trial to six more cities, adding to the existing 10 major pilot cities already undergoing trials.

Related: Fitting the bill: US Congress eyes e-cash as an alternative to CBDC

Meanwhile, the Philippines government on Wednesday announced that it will be pursuing its own pilot project for a wholesale central bank digital currency, called Project CBDCPh, which it envisions will be used for cross-border payments, equity securities payments and intraday liquidity facilities (ILF).

Tags
Blockchain
Regulation
Hong Kong
Digital Currency
Stablecoin
Digital Asset
Central Bank
Related Posts
Crypto Bahamas: Regulations enter critical stage as gov't shows interest
The crypto community and Wall Street converged last week in Nassau, Bahamas, to discuss the future of digital assets during SALT’s Crypto Bahamas conference. The SkyBridge Alternatives Conference (SALT) was also co-hosted this year by FTX, Sam Bankman-Fried’s cryptocurrency exchange. Anthony Scaramucci, founder of the hedge fund SkyBridge Capital, kicked off Crypto Bahamas with a press conference explaining that the goal behind the event was to merge the traditional financial world with the crypto community: “Crypto Bahamas combines the crypto native FTX audience with the SkyBridge asset management firm audience. We are bringing these two worlds together to create a …
Adoption / May 3, 2022
Russian central bank opposes ruble-pegged stablecoins
Senior officials at the Bank of Russia have come out against the issuance of private stablecoins pegged to the Russian ruble. Sergei Shvetsov, a first deputy governor of the Russian central bank, said that the bank aims to ban private firms from offering stablecoins backed by the country’s fiat currency. Russian crypto developers will only be able to use the Bank of Russia’s digital ruble, Shvetsov said. According to a Nov. 30 report by local news agency Prime, the he said that this approach follows the “philosophy of the means of payment’s uniqueness.” Shvetsov referred to China’s digital yuan-related regulations …
Regulation / Dec. 2, 2020
'Banks will have to adjust' to crypto, says Bank of England leader
Blockchain and digital assets offer folks the ability to store their own assets, possibly threatening the solutions banks offer. Making sure banks remain relevant is not on the to-do list of England's central bank, however, according to the Bank of England's deputy governor Jon Cunliffe. “Our job is not to protect bank business models,” Cunliffe said, as reported by a Friday Reuters brief. “Banks will have to adjust," he added. "Our job is to ensure that if bank business models change, we manage the financial and macro-economic consequences of that.” Cunliffe posited that it is not the responsibility of the …
Regulation / Nov. 13, 2020
Hong Kong Monetary Authority aims to oversee stablecoin reserves
Hong Kong’s central bank, the Hong Kong Monetary Authority (HKMA), wants to supervise stablecoin issuance and reserves management. HKMA published a discussion paper on Jan. 12 regarding cryptocurrencies and stablecoins, in which it provided its views on how the industry should be regulated in Hong Kong. In the 34-page long consultation document, the HKMA paid special attention to “payment-related stablecoins,” pointing out that the market capitalization of all stablecoins hit $150 billion in December, accounting for 5% of the entire crypto market. The regulator added that all existing stablecoins are “mostly asset-linked and predominantly pegged” to the United States dollar, …
Adoption / Jan. 12, 2022
CBDC activity heats up, but few projects move beyond pilot stage
Government-issued electronic currency seems to be an idea whose time has come. “More than half of the world’s central banks are now developing digital currencies or running concrete experiments on them,” reported the Bank for International Settlements, or BIS, in early May — something that would have been unthinkable only a few years ago. The BIS also found that nine out of ten central banks were exploring central bank digital currencies, or CBDCs, in some form or other, according to its survey of 81 central banks conducted last autumn but just published. Many were taken aback by the progress. “It …
Adoption / May 16, 2022