Stablecoin sandbox launches in Hong Kong, as companies make plans for cryptocurrencies pegged to local currency

Hong Kong’s de facto central bank has announced the launch of a stablecoin “sandbox”, allowing companies to trial cryptocurrency tokens pegged to fiat currency in the city, the Hong Kong Monetary Authority (HKMA) announced on Tuesday.

The purpose of the sandbox is to allow for stablecoin trials “within a limited scope and risk-controlled environment”, according to the HKMA, and it will allow the bank to “communicate supervisory expectations and guidance” to potential issuers. There is no limit on the number of entities that can participate, but applicants must show a “genuine interest in and reasonable plan on issuing fiat-referenced stablecoins”. Applicants must also have a plan for participating in the sandbox and show “a reasonable prospect of complying” with the regulations proposed in December, which are still under review following public feedback.

“The sandbox arrangement … will facilitate the formulation of fit-for-purpose and risk-based regulatory requirements, which is key to promoting the sustainable and responsible development of the stablecoin issuance business,” HKMA Chief Executive Eddie Yue said in a statement.

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The announcement was quick to attract attention from the industry. Fintech firm RD Technologies, founded by Hong Kong’s former central banker Norman Chan Tak-lam, said that it welcomed the scheme and is exploring the launch of a token called HKDR that is pegged to the Hong Kong dollar. This would “facilitate virtual asset trading and tokenised real-world asset settlements, enhance the cost-efficiency of cross-border payments, and enable the access to various on-chain financial services”, the company said.

“We aim to contribute to the development of Hong Kong’s thriving Web3 ecosystem by issuing a stable, trusted, and credible Hong Kong dollar stablecoin for multiple business use cases in Hong Kong and beyond,” RD Technologies CEO Rita Liu said in a statement. “We believe that the adoption of such a stablecoin would help drive exponential growth in Hong Kong.”

Under the currently proposed stablecoin regulations, issuers in Hong Kong will have to be licensed to sell such tokens to retail investors and have an incorporated entity in the city. Their reserves must also be at least equal to the value of the stablecoins issued.

Similar to the Securities and Futures Commission’s regulations on virtual assets, which cover non-stablecoin cryptocurrencies like bitcoin and ether, some have raised concerns about whether Hong Kong’s rules are too stringent compared with neighbouring jurisdictions like Singapore.
The HKMA will track participants in the sandbox on its website, but there are currently no approved entities. Admission to the sandbox is also not a guarantee that a company will be issued a stablecoin licence, which is a separate application process, the HKMA said.

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