In a recent development, Chinese authorities are intensifying efforts to curb the use of cryptocurrencies, particularly Tether (USDT), in foreign exchange trading. The Supreme People’s Procuratorate (SPP), China’s highest legal prosecution agency, in collaboration with the State Administration of Foreign Exchange (SAFE), issued a joint statement cautioning the public against utilizing USDT as an intermediary for trading the Chinese yuan with other fiat currencies. The directive emphasizes the illegality of using USDT in cross-border foreign exchange transactions, urging local officials to enforce stricter measures to combat fraudulent activities related to foreign exchange.
Contrastingly, Hong Kong is taking steps towards embracing and regulating “fiat-referenced stablecoins” (FRS). The Financial Services and the Treasury Bureau, along with the Hong Kong Monetary Authority (HKMA), has proposed a framework wherein issuers of FRS would need to obtain a specific local license. According to a joint consultation paper, companies actively promoting the issuance of FRS to the public in Hong Kong must adhere to criteria set by the HKMA. These criteria include maintaining reserves fully backing all circulating stablecoins, with reserves at least equal to the par value, secure segregation and safekeeping of reserve assets, as well as transparent disclosure and regular reporting. Notably, algorithmic stablecoins are excluded from qualifying for an HKMA license under the proposed regulations. This dual approach in China and Hong Kong reflects the ongoing evolution of regulatory stances towards stablecoins in the broader cryptocurrency landscape.
