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In a contrasting approach to cryptocurrency regulation, while China intensifies its crackdown on the use of stablecoins like Tether (USDT), Hong Kong is taking steps towards establishing a legal framework for their use.
Contrasting Crypto Strategies: China’s Clampdown vs. Hong Kong’s Regulatory Embrace
China, which implemented a comprehensive crypto ban over two years ago, is now specifically targeting the use of cryptocurrencies such as USDT in foreign exchange trading. The Supreme People’s Procuratorate (SPP) of China, the highest prosecutorial authority in the country, in conjunction with the State Administration of Foreign Exchange (SAFE), has issued a stern warning to the public. They have advised against utilizing USDT for the exchange of the Chinese yuan with other fiat currencies. The joint statement by the SPP and SAFE emphasizes the need for heightened vigilance and stricter enforcement measures against the use of stablecoins in cross-border foreign exchange transactions.
The Chinese authorities have clarified in their statement that the practice of employing USDT as a conduit for currency exchange between local and foreign currencies is deemed illegal. They have urged their local branches to enhance collaboration to effectively combat and penalize illegal foreign exchange transactions and related fraudulent activities in compliance with the law.
On the other hand, Hong Kong is moving in a different direction by proposing a regulatory framework for “fiat-referenced stablecoins” (FRS). A consultation paper jointly issued by the Financial Services and the Treasury Bureau and the Hong Kong Monetary Authority (HKMA) outlines a detailed plan. This plan includes a requirement for stablecoin issuers, who actively market their issuance of FRS to Hong Kong’s public, to obtain a specific license from the HKMA.
To be eligible for this license, issuers must ensure that all circulating stablecoins are fully backed by reserves at least equal to their par value. Additionally, they must maintain segregation and safekeeping of these reserve assets, along with adhering to mandated disclosure and regular reporting norms. The policy explicitly states that algorithmic stablecoins will not be eligible for licensing under these regulations.
This dual development highlights the divergent paths being taken by China and Hong Kong in the realm of cryptocurrency regulation. While China is fortifying its stance against the use of stablecoins in financial transactions, Hong Kong is laying down a structured path for their regulated use, marking a significant moment in the evolving landscape of global cryptocurrency regulation.
ICYMI: 🇭🇰 Hong Kong charts a path for stablecoin regulation! Proposed rules highlight maintaining full reserves matching par value, secure storage, and local offices with key personnel. 👀 #HongKong #Crypto #Stablecoinhttps://t.co/VaBvS6wqvX
— BSCN (@BSCNews) December 31, 2023
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