At the Singapore FinTech Festival in November, one big news caught people's attention:Singapore has decided to issue licenses to stablecoin issuers Paxos Digital Singapore PTE and Straisx
The move marks Singapore's cautious endorsement of stablecoins, a less volatile cryptocurrency. Stablecoins are typically pegged 1 to 1 to fiat currencies and are backed by assets such as cash and bonds as reserves.
Outgoing Monetary Authority of Singapore (MAS) CEO R**i Menon said at the Singapore Fintech Festival that stablecoins could play a "useful role" in "digital currencies", adding that Paxos Digital and StraissX are "substantially compliant" with the regulator's upcoming regulatory framework for stablecoins.
At the same time, he made it clear that Singapore will continue to be cautious about cryptocurrencies. Digital assets such as Bitcoin "have not performed well as a medium of exchange or store of value,** and have been subject to speculative volatility, with many cryptocurrency investors incurring significant losses," Menon said.
In recent years, Singapore has often been reported as **"Cryptocurrency Hub"Or there may be a similar description, but the reality is more nuanced. As Menon highlighted at the recent fintech festival, cryptocurrencies are still fraught with risks. In the worst hacks and scandals in the industry, such as the FTX crash, the biggest losers are the average ** investors. Even if institutional investors lose a lot, they are better able to withstand the blow than the investor because in the worst-case scenario, the investor could lose his life savings.
In light of this, Singapore appears to be betting on the longevity of stablecoins and will play an increasingly important role in financial services in the future. The decision to regulate stablecoins is in line with Singapore's interest in planning to develop itself into a digital asset hub for institutional investors, with stablecoins accounting for a whopping 45% share of institutional investors' crypto portfolios, surpassing other crypto categories, according to a recent report from crypto exchange Bybit.
This also gives Singapore an edge in competition with Hong Kong, which is fully committed to cryptocurrency development but has yet to introduce any regulatory framework for stablecoins.
Through its regulatory framework, MAS aims to legitimize fiat-backed stablecoins as a reliable medium of digital exchange, thereby building a bridge between fiat and digital asset ecosystems. To do this, MAS will require that the reserves pegged to the stablecoin must hold low-risk, highly liquid assets whose value must always be equal to or exceed the value of the stablecoin in circulation. This regulatory framework for stablecoins will apply to single-currency stablecoins (SCS), which are pegged to the Singapore dollar or any G10 currency issued in Singapore.
At the same time, other types of stablecoins – SCSs that are issued or pegged to other currencies or assets outside of Singapore – will continue to be subject to the existing regulatory regime for digital payment tokens (DPTs). "MAS will continue to monitor developments in the stablecoin space and consider incorporating other types of tokens into the SCS framework," MAS said in its consultation paper. ”
Aside from Singapore, Japan is by far the most interested country in Asia in stablecoins. However, unlike the centralized strategy led by MAS, in Japan, financial institutions are spontaneously and systematically experimenting with stablecoins, while regulators and legislators are working to gradually promote the adoption of stablecoins in Japan's financial system.
In March, for example, three Japanese banks said they would try asset-backed stablecoins using a system developed by GU Technologies, a Web3 infrastructure company. Proof-of-concept experiments led by Tokyo Kiraboshi Financial Group, Minna No Bank and The Shikoku Bank are underway on the Japan Open Chain – a public blockchain that is compatible with Ethereum and complies with Japanese law. In addition, in March of this year, Mitsubishi UFJ Financial Group, a major Japanese bank, began a collaboration with blockchain companies DataChain, Progmat Coin, and Soramitsu to work on an intra-group project aimed at launching a stablecoin interoperability pilot.
In June, Japan's revised Payment Services Law came into effect, making Japan one of the first countries to develop a framework for the use of stablecoins overseas. The law authorizes banks, trust companies, and fund transfer operators to issue stablecoins. Stablecoins must be pegged to the Japanese yen or other fiat currency and guarantee that holders have the right to redeem at face value. This legislation appears to be aimed at preventing possible risks such as issuers lacking real assets to support stablecoins, and assets being involved in opaque shady investments.
While some payment services companies, notably Circle, have expressed interest in issuing stablecoins in Japan, no company has yet ventured into the space in Japan. It remains to be seen whether these companies will be able to meet the regulatory requirements.
In contrast to Singapore and Japan, Asia's two most populous countries remain skeptical of stablecoins. This trend is significant given the economic importance of China and India. If stablecoins are effectively banned by China and India in the Asia-Pacific region** and investment flows, it will be difficult for stablecoins to gain a foothold. Circle CEO Jeremy Allaire seems to be well aware of the implications and consequences of China's ban on stablecoins – which may explain why he raised the possibility of a renminbi-backed stablecoin to the South China Morning Post in July. "If China** wants to see the renminbi used more freely globally** and in commerce, stablecoins may be a better way to do that than a CBDC," he said. ”
While Allaire's candid remarks are commendable, it is highly unlikely that China will give up control of the digital yuan and switch to a cryptocurrency to internationalize the yuan. China still wants to see its currency used more widely in the international financial system, but it has quietly shelved ambitious unofficial targets set in the early 2010s due to a greater focus on high capital outflows and associated systemic financial risks.
Nonetheless, Hong Kong is reportedly planning to introduce a stablecoin regulatory regime in 2024. A discussion on the topic said that stablecoins based on arbitrage or algorithmic value determination would not be accepted, which could lead to the exclusion of algorithmic stablecoins such as UST.
The evolution of Hong Kong's regulatory regime is worth keeping an eye on, as it may provide some clues as to how China** views stablecoins. If Hong Kong's stablecoin regulatory regime is long and strict, the likelihood of Chinese mainland liberalizing digital assets will be reduced accordingly.
Finally, in keeping with its skepticism about digital assets, the Reserve Bank of India (RBI) has so far also taken a negative stance on stablecoins – arguing that they infringe on its monetary policy sovereignty. "We have to be very cautious about the use of stablecoins. From the past experience of other countries, this is an existential threat to policy sovereignty," RBI Deputy Governor T Rabi Sankar said in July, adding, "There is a risk of dollarization if large stablecoins are pegged to some other currencies." ”
He added that instead of focusing on stablecoin payments, it would be better for countries to have their own CBDCs and then "create a mechanism that will enable national CBDCs to dock and trade with each other."
If you have to choose between CBDCs and stablecoins, we expect most central banks to choose the former. However, it remains to be seen whether there will be enough space in other regions to accommodate both, as is the case in Singapore and Japan.
Disclaimer: The above content does not constitute any investment advice, investment is risky, and participation should be cautious.