The CEO of the Hong Kong Monetary Authority (HKMA) has raised alarms regarding the growing fascination with stablecoins, urging stakeholders to temper their enthusiasm. This cautionary note comes just as important legislation is set to take effect, alongside the potential for new licenses to be issued in the near future.
HKMA Issues Caution on Stablecoin Excitement
In a recent update, HKMA’s head, Eddie Yue, expressed concerns regarding what he termed the current “stablecoin fervor.” He urged a reassessment of the ongoing discussions surrounding this burgeoning sector in order to prevent market overheating.
In his blogpost, Yue highlighted that while stablecoins possess significant potential as an “innovative payment method” progressively merging with established financial frameworks through appropriate regulations, a heightened caution is warranted.
As interest in stablecoins surges, alongside expectations surrounding their functionality and future, Yue reiterated the need to prevent unwarranted hype, particularly ahead of the new Stablecoins Ordinance, which is set to come into effect on August 1.
This past May, the Legislative Council of Hong Kong passed the eagerly awaited Stablecoins Ordinance, mandating that anyone intending to issue a fiat-backed stablecoin (FRS) in the region must obtain a license from the HKMA.
Under this new regulatory framework, only licensed entities will be permitted to introduce FRS, ensuring that retail investors can engage only with tokens from accredited issuers.
Yue characterized the recent trend as displaying “excessive conceptualization.” He pointed out that while discussions often focus on the transformative potential of stablecoins for traditional finance, they frequently fail to articulate how these ideas can be actualized into practical scenarios and specific implementations.
Interestingly, numerous institutions have shown interest in engaging with the HKMA, indicating plans to apply for a stablecoin license. However, many of these entities remain in early planning phases and lack concrete development plans.
“From our discussions, it appears many firms are still in conceptual stages, with ambitions to boost cross-border transaction efficiency, support Web3.0 aspirations, and enhance foreign exchange market operations, but they struggle to present actionable strategies or demonstrate risk management capabilities,” Yue commented.
Limited Licenses Expected in the Initial Phase
Yue also sounded alarms regarding market speculation, noting a rising trend of optimism that has led to excessive speculation in the stablecoin arena. He pointed out that several publicly listed companies with no previous ties to crypto or stablecoins have experienced stock price surges simply due to their announcements related to stablecoin ventures.
Some listed firms (…) have reported significant increases in their stock valuations and trading volumes merely by signaling their intentions to venture into the stablecoin sector, thus significantly bolstering their corporate visibility.
However, it’s essential to note that the authority has previously stated that only a limited number of licenses will be granted in the initial phase, leading many potential applicants to possibly feel let down.
“Even upon securing a license, considering our objective for sustainable growth and the initial resource commitments, uncertainties remain regarding the immediate gains for these firms,” Yue stated on Wednesday.
He emphasized that post the Ordinance’s implementation, any promotion of unlicensed stablecoins to the public in Hong Kong will be deemed illegal.
Anticipation is building for the HKMA to release updated licensing guidelines by the end of July, which will incorporate stricter Anti-Money Laundering (AML) protocols aimed at minimizing risks and fostering a stable growth environment for Hong Kong’s burgeoning stablecoin landscape.
According to reports from Bitrabo, Hong Kong’s Financial Secretary, Paul Chan Mo-po, indicated last month that the HKMA had already received numerous applications from entities seeking to qualify as issuers.
As reported, several companies submitted applications to the HKMA in June, including the logistics tech firm Reitar Logtech and the overseas division of major Chinese fintech player Ant Group.
The financial watchdog aims to balance growth through regulation as the first phase in its strategic roadmap. Chan also suggested that future steps might include stablecoins tied to various assets, which must demonstrate integration with the real economy and have practical use cases, as opposed to merely serving as speculative tools.
