The regulatory and licensing framework for fiat-referenced stablecoins in Hong Kong was implemented on 1st August, overseeing the issuance, promotion and marketing of these digital assets within the region.
The State Council of China is allegedly in discussions regarding the utilisation of offshore RMB stablecoins for trade settlement. This initiative is part of its strategy to encourage a greater number of businesses to adopt its currency for international trade.
Concurrently, the Assets Supervision and Administration Commission has directed state-owned enterprises to investigate the use of stablecoins for trade.
During its latest half-yearly earnings announcement, oil and gas producer PetroChina said the use of stablecoins for cross-border payments was under consideration. The potential benefits for a company that conducts a high volume of transactions outside China in terms of payment cost and speed are obvious.
Adi Ben-Ar, Founder & CEO of development studio Applied Blockchain says his interest in this area was motivated by the fact that at one point he was receiving half of his company’s total revenue from US businesses in USDC and other stablecoins.
One of the benefits was that before the customer had even emailed to say they had paid, he could already see the balance.
“The interesting thing about stablecoins is the rails they run on – in other words, the blockchain – and the fact that this enables low cost, instant settlement, instant movement of funds across different financial products with different institutions, automation/autonomous logic and real time payout of interest on treasury balances,” says Ben-Ar.
Scott Taylor, Treasurer at global cloud communications software company Bandwidth, says that although the firm is not using stablecoins yet, he has been looking into what its use cases could be.
“Interestingly enough, one of our IT leaders has pushed the idea internally but in each use case so far the potential FX cost seems to outweigh the speed and benefits,” he says. “Maybe I’m missing something but I am actively trying to learn more.”
In February, Standard Chartered Bank said it would apply for a licence to issue a Hong Kong dollar-backed stablecoin in a joint venture with fintech Animoca Brands and telecoms company HKT. Other banks are expected to follow suit with the first licences likely to be issued early next year.
But the Hong Kong Monetary Authority has suggested that only a very small number of licences will be issued initially. There are also concerns about the licensing requirements, which include holding high levels of liquid reserves and strict rules on client identity verification.
During a panel discussion at last week’s PostTrade360 conference, Nick Philpott, Co-founder and Head of Partnerships at Zodia Markets spoke about how stablecoins are being used in emerging markets generally – and commodity and maritime markets in particular – to fill the vacuum left by the retreat of correspondent banking.
“There now is an alternative for the 20% of payments that cause 80% of their problems,” he says. “Assuming most of your flows are US, EU and UK, these payments will carry on being fine. But every now and again you will need to move money from a country where repatriating fiat currency costs a fortune.”
Speaking at the Hong Kong CryptoFi Forum in late August, Changpeng Zhao – Founder of digital asset exchange Binance – noted that stablecoins are not conducive to the capital controls China uses to manage cross-border money flow.
However, they are consistent with China’s desire to internationalise its currency and reduce the power of the US dollar as the world’s reserve currency. Zhao went on to praise the speed with which Hong Kong passed the necessary legislation.
