Hong Kong to launch stablecoin sandbox in Web3 push

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Hong Kong has pledged to continue supporting digital assets, with the latest budget revealing plans to launch a stablecoin sandbox to support issuers.

Presenting the budget, financial secretary Paul Chan delved into stablecoins, plans to expand the city’s digital dollar, Web3 initiatives, tokenized bonds, and an expansion of China’s digital yuan testing.

On stablecoins, Chan revealed that the city consulted the public on legislative proposals to develop a regulatory regime for the sector towards the end of last year. The aim is to safeguard financial stability and protect investors without compromising innovation, he said.

“The HKMA will soon roll out a “sandbox” for entities interested in issuing stablecoins to conduct trials, under manageable conditions, on the issuance process, business models, investor protection and risk management system,” he said.

Hong Kong has ramped up its stablecoin regulatory efforts in recent months as it strives towards becoming the global digital asset hub. CoinGeek reported recently that the Treasury Bureau and the central bank launched a public consultation in December. Among the proposals is for all stablecoin issuers to obtain a license from the HKMA.

The budget also revealed the city’s central bank digital currency (CBDC) efforts are gaining momentum. On the domestic front, the HKMA completed the first phase of the e-HKD pilot program last October, where it studied the feasibility of the CBDC in tokenized deposits, offline payments, and programmable payments. The second phase of the pilot “will soon commence” to explore other use cases.

On the regional front, the HKMA has been a vital member of the mBridge cross-border CBDC pilot alongside central banks in China, the UAE, and Thailand. The four central banks, working with the Bank for International Settlements (BIS), will launch the project’s first phase this year.

Hong Kong has also pledged to expand the scope of testing for China’s digital yuan. Residents can now top up their e-CNY wallets through the Faster Payment System, a real-time system that allows users to send money across various banks and digital wallets.

Chan reiterated the city’s commitment to protecting investors amid rapid developments in the digital economy. On digital currencies, he stated that Hong Kong remains committed to the “same activity, same risks, same regulation” approach that subjects VASPs to strict financial industry policies.

Additionally, the Securities and Futures Commission (SFC) has launched a licensing regime that will further protect users. The deadline for a license application was February 29, after which unlicensed operators were ordered to shut down. According to the SFC’s website, 24 VASPs have applied for the license, including OKX, Crypto.com and Bybit.

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.

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