Article source: Coin Radar
Hong Kong Special Administrative Region News Release
At the Legislative Council meeting held yesterday (December 11), Mr. Wu Jiezhuang suggested that the Hong Kong government consider incorporating digital assets and cryptocurrencies into its financial reserves and continuously purchasing and holding them through the foreign exchange fund. Although Mr. Chan Ho-lam did not directly approve this idea, he surprisingly seemed open to it.
Hong Kong may see a thawing of cryptocurrencies
In recent months, Hong Kong has been striving to become Asia's leading financial center for cryptocurrencies. As early as April, the Hong Kong SFC approved the listing of six virtual currency spot ETFs on the Hong Kong Stock Exchange. Mr. Wu Jiezhuang has been advocating policies to support cryptocurrencies in Hong Kong, such as in July this year, he proposed that Hong Kong incorporate Bitcoin into its strategic financial reserves under compliance, closely following Trump's plan to establish a 'Bitcoin national strategic reserve' during the election. In this Legislative Council meeting, Mr. Wu Jiezhuang's proposal focused on positioning cryptocurrencies as high-performance investment options:
"According to reports, financial enterprises around the world are increasing their investments in digital assets. Since the beginning of this year, the price of Bitcoin, known as 'digital gold', has surged, and the development of global currencies is heading towards digitization," said Mr. Wu Jiezhuang.
He inquired whether the government has plans to improve regulations or appoint a committee to study the market potential of cryptocurrencies. He also mentioned the benefits of incorporating digital assets and cryptocurrencies into its financial reserves.
Mr. Chan Ho-lam's stance is very moderate towards the industry, claiming that cryptocurrencies 'are bringing new innovative opportunities... to the financial system.' He also pointed out that cryptocurrencies are integrating well into global financial institutions: 'Although crypto assets are not target assets for the foreign exchange fund, external managers also invest in diversified asset classes and markets around the world. It cannot be ruled out that there may be investments involving cryptocurrencies during investment operations... but the relevant proportion is negligible.'
Compared to some previous hostilities towards Hong Kong, this is a very encouraging response. Mr. Chan Ho-lam merely mentioned the anti-crypto metaphor in passing, such as its potential criminal applications, and explicitly acknowledged that cryptocurrencies are developing on the world stage. This echoes a ruling by the Chinese Supreme Court in November that directly confirmed the legitimate use of cryptocurrencies.
Despite the severe domestic ban on Bitcoin, there are still signs indicating that Bitcoin may thaw. At the BRICS summit in October, the Chinese representative supported solutions based on cryptocurrencies and blockchain to facilitate international de-dollarization efforts. Perhaps these favorable signals signify a bright and positive future for cryptocurrencies in the region.
Legislative Council Question 15: Policy on Digital Assets
Below are the questions raised by Mr. Wu Jiezhuang at the Legislative Council meeting today (December 11) and the written reply from the Acting Secretary for Financial Services and the Treasury, Mr. Chan Ho-lam:
Question:
According to reports, global financial enterprises are increasingly investing in digital assets, with the price of Bitcoin, dubbed 'digital gold', rising sharply this year. The world's currencies are moving towards digitization. In addition, certain foreign regions plan to position Bitcoin as a strategic reserve asset for the government, and are considering appointing a commissioner responsible for formulating and executing relevant policies, as well as promoting the development of the cryptocurrency industry. In this regard, could the government inform this council:
(1) In light of opinions pointing out that the cryptocurrency industry is developing rapidly, but the current regulatory system regarding cryptocurrencies in Hong Kong still needs improvement, will the government further accelerate the improvement of the relevant regulatory system;
(2) Will the government consider establishing a dedicated department or commissioner to study and formulate policies related to digital assets and cryptocurrencies;
(3) In light of opinions suggesting that global acceptance of Bitcoin is increasing, and that Bitcoin, as a digital asset, has its risks but possesses decentralization characteristics, will the government consider including digital assets and cryptocurrencies in its financial reserves and consider continuously purchasing and holding them through the foreign exchange fund; and
(4) Has the government assessed and researched the impact on the financial security of China and Hong Kong from foreign countries designating Bitcoin as a strategic reserve asset (for example, whether it may exert pressure on the Hong Kong dollar system and thus on Hong Kong's economic situation in the long run)? If so, what are the relevant impacts, and what countermeasures does the government have, including whether it will leverage Hong Kong's first-mover advantage and unique resource conditions in the cryptocurrency field to make strategic deployments to contribute to maintaining national financial security?
Reply:
Chairman:
In response to the question raised by Mr. Wu Jiezhuang, after consulting the Hong Kong Monetary Authority (HKMA) and the Securities and Futures Commission (SFC), we now reply as follows:
(1) and (2) The virtual asset industry is developing rapidly, bringing new opportunities for financial innovation and financial inclusion, but also increasing the complexity of the financial system. In terms of regulation, the relationship between the traditional financial system and the virtual asset market seems to be becoming more evident and tighter. International organizations and standard-setting bodies are quite concerned about the potential risks that the proliferation of virtual assets may pose to monetary and financial stability. Among them, the Financial Stability Board issued the final version of the global regulatory framework for crypto-asset activities in July 2023 after consulting the opinions of standard-setting organizations. This framework proposes recommendations for the regulation and supervision of crypto-asset activities and markets, as well as global stablecoin arrangements. Hong Kong, as a leading international financial center in Asia, has significant influence in the regulation and development of virtual assets. In this regard, to promote the long-term sustainable development of the virtual asset-related industry, the Financial Secretary established a dedicated task force for the development of the third generation of the internet in 2023 to submit recommendations to the government on the sustainable and responsible development of the industry. In addition, the government also issued a policy declaration in October 2022 regarding the development of virtual assets in Hong Kong, indicating that the government and regulatory agencies will adhere to the principle of 'same business, same risk, same rules' and strive to improve the regulatory framework for virtual assets.
Regarding the specific regulatory policies and measures for virtual assets, the Financial Services and the Treasury Bureau (FSTB) is responsible for the relevant policy formulation work and coordinates various relevant departments and financial regulatory agencies. Among them, the government has introduced a licensing system for virtual asset service providers through the amendment of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Chapter 615) to ensure that virtual asset trading platforms comply with international standards for combating money laundering and terrorist financing and to protect investors. Following the introduction of the licensing system last year, the FSTB consulted the Legislative Council's Financial Affairs Committee on the regulatory framework for fiat stablecoin issuers this year, and will submit the related bill to the Legislative Council within this month. In addition, regarding over-the-counter trading services for virtual assets, we are adjusting the proposals based on the results of the public consultation conducted earlier this year and will conduct a second round of public consultation next year; we will also propose a licensing system for regulating virtual asset custodians next year.
(3) The foreign exchange fund invests in globally diversified asset classes and markets to spread risks and enhance long-term returns. Although crypto assets are not target assets for the foreign exchange fund's investments, the external investment managers hired by the Monetary Authority also invest in globally diversified asset classes and markets. It cannot be ruled out that individual investments involving crypto assets may occur during different periods of investment operations by external managers, but their share is very small.
(4) The linked exchange rate system has been in place for over forty years since 1983 and has undergone multiple economic and interest cycle changes, as well as numerous global and regional economic and financial crises. It has proven effective and is the cornerstone of Hong Kong's financial and monetary stability. The linked exchange rate system operates under a rigorous 'currency board' model and enjoys considerable acceptance in global financial and monetary markets. International organizations such as the International Monetary Fund consistently believe that the linked exchange rate is a suitable monetary system for Hong Kong.
As mentioned above, the interaction between virtual assets and traditional finance is becoming increasingly frequent. On one hand, the development of virtual assets and related technologies can bring potential benefits to the overall financial market, such as blockchain technology, which has the potential to enhance the efficiency and transparency of economic and financial activities. However, on the other hand, it also involves risks related to financial stability, money laundering, and investor protection. The government of the Special Administrative Region and regulatory agencies will continue to develop regulatory systems to address these risks based on the principle of 'same business, same risk, same rules'. This move can create a conducive environment to promote sustainable and responsible innovation while ensuring financial security and consolidating Hong Kong's important role as an international financial center.
In addition to improving the regulatory system, the government and regulatory agencies have also introduced measures to promote market development. In terms of tokenization, to enhance market clarity, the SFC issued two circulars last November regarding guidelines for intermediaries engaging in tokenized securities activities and guidelines for tokenization of investment products authorized by the SFC, clarifying regulatory expectations from the perspective of investor protection. The SFC also announced several measures to promote the development of virtual assets in Hong Kong this October, including a rapid licensing process for virtual asset trading platforms and the establishment of a consultation group for licensed platforms. The consultation group is expected to start operating in early next year.
