Hong Kong is moving forward with a regulatory framework for cryptocurrencies pegged to traditional financial assets, while the Western world debates how to regulate stablecoins.
The Hong Kong Monetary Authority (HKMA) is seeking public comments on stablecoins and aims to introduce a regulatory framework by the end of 2024.
Hong Kong's increasing policy clarification regarding cryptocurrencies is being hailed by the crypto community in China, as the region sets itself apart from mainland China's strict stance on crypto trading.
Hong Kong recently implemented a new crypto regulatory regime, requiring exchanges to obtain licenses to operate in the city. Licensed exchanges will be able to offer retail investors trading of certain major cryptocurrencies, likely including Ether and Bitcoin.
Hong Kong's stablecoin regulation has been a long time in the making, with the HKMA issuing a discussion paper in January 2022 and confirming a "risk-based and agile approach" to regulating stablecoins.
The HKMA has been involved in developing regulatory standards and recommendations on stablecoins through its participation in the Financial Stability Board (FSB), which is considered a leader in framing global crypto rules.
Proposed rules in the discussion paper prioritize the regulation of stablecoins as a means of payment, starting with stablecoins pegged to fiat currencies due to potential financial stability risks.
The paper emphasizes the need for stablecoins to be fully backed by high-quality and highly liquid assets, excluding algorithmically stabilized tokens like UST.
Stablecoin holders should have the ability to redeem stablecoins into fiat currencies within a reasonable period, according to the paper.

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