The Regulation of Stablecoins: Hong Kong's New Ordinance and Global Trends
UPSC Prelims Subject
Science and Technology (Cryptocurrency, Blockchain)
Indian Economy (Financial Markets, Regulation, Digital Currency)
Key Highlights from the News
Hong Kong implements a new law (Stablecoins Ordinance) from August 1 to regulate stablecoins.
According to this, companies issuing stablecoins need to obtain a license from the Hong Kong Monetary Authority (HKMA).
Unlike other cryptocurrencies like Bitcoin, stablecoins aim to maintain stability by pegging their value to other assets like the dollar or gold.
They are different from Central Bank Digital Currencies (CBDCs) because they can be issued by private entities.
Lack of transparency regarding actual reserves of stablecoins, potential impact on financial stability, and incidents like the Terra-LUNA collapse in 2022 are reasons for the need for regulations.
Other countries like the US (GENIUS Act), Japan, and Singapore have also started regulating stablecoins.
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