Jeremy Allaire, the CEO, and co-founder of Circle, the operator of the USDC stablecoin, has expressed optimism about the development of Web3 in Hong Kong and the local monetary authority’s move towards regulating stablecoins. Despite the lack of openness to cryptocurrencies in mainland China, Allaire believes that Hong Kong’s relevance in the global financial market necessitates its embrace of digital assets.

During his recent two-week trip to Asia, Allaire highlighted the potential of stablecoins to offer a more immediate solution for the Chinese government’s goal to internationalize the yuan. According to the CEO, Stablecoins are a better option to achieve these goals instead of the nation’s central bank digital currency (CBDC) eCNY. 

Allaire pointed to a stablecoin pegged to the offshore yuan (CNH) as an example of how this might work. However, it must be noted that members of the team behind the stablecoin CNH were detained in Shanghai in May, with no explanation provided by the authorities.

In Hong Kong, the Monetary Authority (HKMA) has pledged to introduce regulations on stablecoins by 2024, acknowledging their potential impact on financial markets. The Securities and Futures Commission (SFC) is also developing its own regulations for stablecoins, following the implementation of rules on licensing sellers of other types of cryptocurrencies last month.

USDC, or USD Coin, is the second-largest US dollar-backed stablecoin in the world by market capitalization after Tether (USDT). Circle, based in Boston, is the world’s largest “regulated dollar stablecoin issuer,” with USDC considered a “stored-value instrument” in the US.

Allaire expressed enthusiasm about the HKMA’s plans, stating that it was a priority for the Hong Kong government and a motivating factor for Circle to grow its business in the region.

If central banks are going to upgrade their own systems to move away from legacy technology into more modern distributed ledger technology, that’s great,” Allaire said. “There’s a whole bunch of things that are useful from that, but I view that as very different than the work that the private sector does to innovate on the public internet.

In related news, central banks worldwide have expressed concerns about the potential impact of stablecoins on financial stability. As a possible mitigation measure, the HKMA suggested that the value of reserve assets should meet the value of the outstanding stablecoins at all times. The HKMA is also researching a possible digital Hong Kong dollar, with the city participating in a cross-border trial for the eCNY using a blockchain referred to as the mBridge.