Ant Group and JD.com, among others, had been gearing up to launch stablecoins in Hong Kong, but those plans are now on hold.
The tech giants had intended to move forward after Hong Kong’s legislature passed a stablecoin bill in May. The framework governs fiat-backed stablecoin issuers in Hong Kong, requiring these companies to obtain a license from the Hong Kong Monetary Authority.
Initially, Chinese regulators viewed the program as a springboard to expand the reach of yuan-backed stablecoins, and Hong Kong began accepting applications for stablecoin issuers as recently as August. However, the Financial Times reported that now the People’s Bank of China (PBOC) and Cyberspace Administration of China had instructed Ant Group and JD.com to suspend their stablecoin plans.
Leveraging the Hype
After the passage of the stablecoin bill, concerns were raised about stablecoins’ heightened potential for fraud. Ye Zhiheng, Executive Director of the Intermediaries Division at the Hong Kong Securities and Futures Commission, said that many companies appeared to have leveraged the hype around stablecoins for financial gain.
Zhiheng emphasized that organizations often saw their stock prices soar after posting any stablecoin-related news on social media, such as announcing plans to apply for a license.
Questioning the Coinage
The potential for fraud and manipulation isn’t the sole reason PBOC officials are now suspending Hong Kong stablecoin launches. One of China’s main concerns is the growing influence of private companies in the financial sector, and whether tech firms like Ant Group or JD.com should even have the authority to issue currencies.
Some argue that this should remain the domain of central banks, and that central bank digital currencies (CBDCs) backed by the government would be more regulated and stable than company-issued stablecoins.
China has already made strides in piloting its digital yuan. However, like many CBDCs, the token has yet to gain traction because its use cases are limited and it doesn’t accrue interest like other funds.
Still, China continues to promote the digital yuan as an alternative to stablecoins. For example, regulators recently asked Tencent to reduce WeChat Pay’s substantial mobile payments market share to make room for the digital yuan.
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