China tightens grip, Hong Kong license set to be approved

In a contrasting approach to cryptocurrency regulation, while China is stepping up its crackdown on the use of stablecoins like Tether (USDT), Hong Kong is taking steps to build a legal framework to do so.

Contrasting Cryptocurrency Strategies: China’s Crackdown and Hong Kong’s Regulatory Embrace

China, which implemented a comprehensive cryptocurrency ban two years ago, is now specifically targeting the use of cryptocurrencies such as USDT in foreign exchange trading. China’s Supreme People’s Procuratorate (SPP), in conjunction with the State Administration of Foreign Exchange (SAFE), issued a stern warning to the public. They advised against utilizing USDT to exchange Chinese Yuan for other fiat currencies. The joint statement from SPP and SAFE highlights the need for increased vigilance and strict enforcement measures against the use of stablecoins in cross-border foreign exchange transactions.

Chinese authorities made it clear in a statement that using USDT as a means of exchange between local and foreign currencies is considered illegal. They urged local branches to strengthen cooperation to effectively combat and punish illegal foreign exchange transactions and related fraudulent activities in accordance with the law.

Hong Kong, on the other hand, is moving in a different direction, proposing a regulatory framework for “fiat-referenced stablecoins” (FRS). A consultation paper jointly published by the Department of Financial Services, the Department of Finance and the Hong Kong Monetary Authority (HKMA) sets out the detailed plans. The plan includes a requirement that stablecoin issuers actively promoting FRS issuance to the Hong Kong public must obtain certain licenses from the HKMA.

To qualify for this license, an issuer must ensure that all stablecoins in circulation are fully backed by reserves equal to at least their face value. These reserve assets must also be segregated and safely stored while complying with mandatory disclosure and periodic reporting norms. The policy explicitly states that algorithmic stablecoins are not eligible for licensing under these regulations.

These dual developments highlight the different paths China and Hong Kong are taking in the realm of cryptocurrency regulation. While China strengthens its stance against the use of stablecoins in financial transactions, Hong Kong is laying out a structured path for regulated use, marking a significant moment in the evolving landscape of global cryptocurrency regulation.

ICYMI: 🇭instagram Hong Kong is charting a path to stablecoin regulation! The proposed rule emphasizes maintaining full reserves consistent with par, safe storage, and local offices with key personnel. 🙌 #Hong Kong #Cryptocurrency #Stablecoinhttps://t.co/VaBvS6wqvX

—BSCN (@BSCNews) December 31, 2023

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