Stock in Bank of China Experiences Uptick Due to Speculation Regarding Potential Stablecoin Licensing
Hong Kong, a global financial hub, is witnessing a surge of interest in stablecoins, a type of cryptocurrency pegged to traditional assets like the US dollar. The city introduced its stablecoin licensing regime on August 1, and since then, major financial institutions have been lining up to apply for licenses.
The Hong Kong Monetary Authority (HKMA) requires issuers to secure approval under the stablecoin licensing regime, which imposes strict requirements on reserve management, redemption guarantees, client fund segregation, anti-money laundering, disclosure, and operator vetting. The HKMA and the Securities and Futures Commission (SFC) have warned investors that market swings tied to licensing rumours may be misleading.
Vincent Chok, CEO of Hong Kong-based First Digital, emphasises the benefits of blockchain technology for stablecoins. He explains that it reduces settlement times and bypasses the traditional intermediary fees of banks. Chok also notes that adoption is accelerating as regulation provides clarity, and he predicts exponential growth in the next 2-5 years.
One of the institutions showing interest in stablecoins is the Bank of China. The Bank of China's Hong Kong-listed shares rose by 6.7% on Monday, and it is reportedly preparing to apply for a stablecoin issuer license. During its last week's results call, the Bank of China mentioned that it is researching digital asset applications and their risk management. However, the Bank of China did not respond to a request for comment regarding its plans to apply for a stablecoin issuer license.
Besides the Bank of China, HSBC and the Industrial and Commercial Bank of China (ICBC) have also applied for stablecoin issuance licenses in Hong Kong. JD.com and Ant Financial, two prominent Chinese companies, have announced plans to seek licenses abroad for services targeting their international businesses. JD founder Richard Liu aims to use stablecoins to reduce cross-border payment costs, first for business-to-business transfers before expanding to consumers.
The opportunity for stablecoin adoption is "especially pronounced in emerging markets," according to Chok, as it provides a hedge against currency volatility. This is particularly relevant for Hong Kong, which has seen its currency pegged to the US dollar for decades, but faces increasing pressure due to geopolitical tensions.
The city's stablecoin licensing regime has already attracted interest from major financial institutions, including Standard Chartered. The U.S. passed its first federal stablecoin law, the GENIUS Act, shortly before Hong Kong's stablecoin licensing regime was introduced. Given the significant uncertainties surrounding the outcomes of these preliminary plans or applications, the abrupt market movements highlight the need to stay vigilant in these frenetic situations.
In conclusion, Hong Kong's stablecoin landscape is rapidly evolving, with major financial institutions entering the fray. As regulation provides clarity and adoption accelerates, the potential for stablecoins to revolutionise cross-border payments and hedge against currency volatility is becoming increasingly apparent. However, investors are urged to approach these market movements with caution, as they may be influenced by speculation and rumours.
