JD.com wants to develop stable currency

On July 18, the Hong Kong Monetary Authority (HKMA) announced the first batch of participants in the "Sandbox" for stablecoin issuers, including JD CoinChain Technology (Hong Kong) Co., Ltd., Yuanbi Innovation Technology Co., Ltd., and joint applicants Standard Chartered Bank (Hong Kong) Co., Ltd., Animoca Brands Limited, and Hong Kong Telecom Limited (HKT).

The Hong Kong Monetary Authority announced the launch of the "Sandbox" for stablecoin issuers in March this year. The institutions entering the "Sandbox" can test the expected business model within a specified scope.

The parent company of JD CoinChain Technology is JD Technology, a subsidiary of the Financial Group. JD CoinChain Technology was officially registered in March 2024, and its main businesses include digital currency payment systems and blockchain infrastructure construction.

According to media reports, Liu Peng, CEO of JD CoinChain Technology, is currently the vice president of JD Technology. Currently, JD CoinChain Technology has obtained Type 1 (Securities Trading), Type 4 (Providing Advice on Securities) and Type 9 (Asset Management) licenses from the Securities and Futures Commission (SFC) of Hong Kong.

The "Sandbox" launched in March 2024 is one of the initiatives of the HKMA to promote the sustainable and responsible development of the stablecoin ecosystem in Hong Kong. Through the "Sandbox", the HKMA allows institutions that intend to issue stablecoins in Hong Kong to test their operating plans and communicate two-way on the proposed regulatory requirements to develop a regulatory system that is fit for purpose and risk-based.

Since January 2022, Hong Kong regulators have been promoting progress in stablecoin policies. The discussion process in January 2022 summarized the feedback received and clarified the initial direction of the regulatory framework.

In the "Policy Statement on the Development of Virtual Assets in Hong Kong" officially released by the Hong Kong Treasury Bureau (Financial Services and the Treasury Bureau) on October 31, 2022, it is clearly stated:

"Stablecoins are another focus of ours. Given that stablecoins are said to be able to maintain value stability and their increasing use, such as as a medium of exchange for cryptocurrencies and legal tender, they also have the potential to be interconnected with traditional financial markets (such as payment systems). Drawing on the experience of the recent crisis in the virtual asset market (crypto winter), there is an international consensus that appropriate regulation must be established for different aspects of stablecoins, including governance, stability and redemption mechanisms. In this regard, the Hong Kong Monetary Authority issued a discussion paper on the relevant topic as early as the beginning of this year, inviting relevant parties to formulate a risk-based, proportionate and flexible regulatory system for regulating activities involving stablecoins for payment purposes, and will announce the consultation results and next steps later."

The Hong Kong Treasury Bureau and the HKMA have issued a discussion paper on the relevant topic as early as the beginning of this year, inviting relevant parties to formulate a risk-based, proportionate and flexible regulatory system for regulating activities involving stablecoins for payment purposes, and will announce the consultation results and next steps later. "

In December 2023, a consultation document on the proposed regulatory regime for stablecoin issuers was jointly issued. In March 2024, the HKMA announced the "Stablecoin Issuer Sandbox" policy, allowing the testing of stablecoin issuance within the regulatory sandbox.

In July 2024, the Hong Kong Treasury Bureau and the HKMA issued a consultation summary, summarizing public opinions and feedback, and put forward legislative proposals on the implementation of a stablecoin issuer regulatory regime in Hong Kong. The next stage will be submitted to the Legislative Council for deliberation and relevant guidelines will be issued.

In December 2023, Eddie Yue, Chief Executive of the Hong Kong Monetary Authority, wrote an article pointing out that stablecoins have the opportunity to become an interface between traditional finance and the virtual asset market. If stablecoins gradually become one of the payment methods chosen by the public, digital payments and the real economy may be further combined, and whether stablecoins really have the conditions for "stability" will become particularly important.

According to a press release from the Hong Kong Monetary Authority, participants in the "Sandbox" will not be involved in the use of public funds in the initial stage, nor will they raise funds from the public or provide any related products in the name of the "Sandbox". Citizens must remain vigilant against potential frauds claiming to be related to the "Sandbox". If participants in the "Sandbox" can use public funds to a limited extent due to adjustments to the scope of the test, the HKMA will make a separate announcement.

Regarding the development of stablecoins in Hong Kong, some scholars have also proposed another path.

In July 2023, Wang Yang, Vice-President of the Hong Kong University of Science and Technology and Chief Scientific Advisor of the Hong Kong Web3.0 Association, angel investor Cai Wensheng, founder of Block City Web3.0 Technology Company Lei Zhibin, and Wen Yizhou, a doctoral student at the Hong Kong University of Science and Technology, published a policy proposal in the Ta Kung Pao, proposing that Hong Kong issue a Hong Kong dollar stablecoin backed by foreign exchange reserves.

The article states that stablecoins, a tool that plays a bridging role between traditional finance and the digital economy, have become an important issue in Hong Kong in promoting the development of digital assets. Stablecoins play an important role in the digital financial ecosystem.

Hong Kong's issuance of stablecoins in its own currency will not only help consolidate Hong Kong's blockchain leadership, but also promote the progress of the digital Hong Kong dollar, improve transaction efficiency, reduce transaction costs, improve the current payment system, and further strengthen Hong Kong's financial technology capabilities.

At the same time, the Hong Kong dollar stablecoin can enhance the efficiency and inclusiveness of Hong Kong's financial system. Its stability, free convertibility, high security, high open source and cross-border liquidity can provide support for a wider range of financial innovations. The launch of the Hong Kong dollar stablecoin will undoubtedly inject new impetus into Hong Kong's economy and help enhance Hong Kong's competitiveness in the digital economy era.

The article "strongly calls on" the SAR government to issue a Hong Kong dollar stablecoin (hereinafter referred to as HKDG, where G stands for government) backed by Hong Kong's foreign exchange reserves.

The government-backed Hong Kong dollar stablecoin will have dual protection: on the one hand, it will benefit from government supervision; on the other hand, it will benefit from the information transparency and immutability brought by blockchain contracts. This innovative policy direction will provide strong support for Hong Kong's leadership in the field of digital finance.

They believe that the current plan of the SAR government is limited to allowing and encouraging private institutions to issue Hong Kong dollar stablecoins. In our view, this measure is too conservative and cannot be coordinated with the SAR government's large-scale plan to promote digital assets and the digital economy.