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A Stablecoin Pilot in China?

Hong Kong is well-suited for pilot financial projects, thanks to its well-regarded monetary and regulatory authorities and its open, market-oriented, and globally connected institutional environment. One such scheme could involve the creation of a stablecoin pegged to the offshore renminbi for use in China’s Greater Bay Area.

HONG KONG – The Hong Kong Monetary Authority (HKMA) and Financial Services and the Treasury Bureau (FSTB) are working to establish a regulatory regime for stablecoin issuers in the territory as soon as possible. Asset managers and fintech firms are reportedly following the effort very closely. Other governments should do so as well.

Stablecoins are a type of cryptoasset that is supposed to maintain a value relative to a target currency. “Collateralized” stablecoins are backed by a pool of reserve assets, whether fiat currencies, other cryptoassets, or commodities. But not all stablecoins are backed by reserve assets: unbacked stablecoins seek to maintain a stable value by other means, such as through algorithms that limit their supply, creating a market value.

There is currently no universally agreed standard for stablecoins, let alone a regulatory framework governing them. But the market is large – and growing fast. Since the beginning of 2020, the estimated total market value of stablecoins skyrocketed from $5.9 billion to about $130 billion. Stablecoins pegged to the US dollar dominate the market, owing to the US dollar’s enduring global dominance as a means of payment, store of value, and unit of account, as well as the liquidity and convenience of the US dollar asset market.