Hong Kong’s Financial Secretary Paul Chan outlined plans for a second digital asset innovation push in a blog post over the weekend. After the first policy statement in 2022 formalized its approach to cryptocurrencies, it is planning to announce its future strategy soon. It sounds like the focus could be on digital securities and tokenized trade.
He said Hong Kong’s next steps would “combine the advantages of traditional financial services with technological innovation in the field of digital assets, improving the security and flexibility of digital assets in real economic activities.” Additionally, it plans to support innovation by local and international firms.
Given that the stablecoin sandbox resulted in stablecoin regulation, there’s a good chance the plans relate to another sandbox, Project Ensemble.
The Hong Kong Monetary Authority has been running Project Ensemble, in which institutions have been experimenting with a wholesale CBDC for interbank settlement, tokenized deposits and various types of real world asset (RWA) tokenization applications. On the financial front, these have included bond and fund issuance, repo and corporate treasury management. But there have also been trials for green finance such as tokenized carbon credits and tokenization in the supply chain, including electronic bills of lading (eBL).
Participants in the Ensemble trials included major banks including HSBC, JP Morgan and Standard Chartered alongside large international companies such as BlackRock and Franklin Templeton. There was also a strong representation of large Chinese institutions and companies through Hong Kong subsidiaries.
These developments may signal broader regional implications.
Will China take similar steps?
In the context of stablecoins, Mr Chan also positioned Hong Kong as leading the way for China. “It also reflects our functions as a ‘firewall’ and ‘experimental field’ under the ‘one country, two systems’ and provides experience and reference for the country’s financial development,” he wrote. A key point he highlighted was Hong Kong’ssupport for the issuance of foreign currency stablecoins.
Regarding cryptocurrency, he observed that so far ten platforms have been approved by the Securities and Futures Commission, with another eight in the pipeline. No volumes for the exchanges were provided, but instead some bank-related statistics were disclosed. He said that last year the total transaction volumes “of digital assets and related products of local banks reached HK$17.2 billion” ($2.2 billion). Given ZA Bank was the first to launch retail crypto transactions in late November 2024, this figure represents either wholesale digital assets such as transactions involving Hong Kong’s DLT-based government and other bonds, or the payment leg of transactions on crypto exchanges. Mr Chan added that banks held HK$5.1 billion ($650 million) in digital asset custody at the end of 2024.
It shouldn’t be long before the Hong Kong direction for the next wave of digital asset innovation becomes clearer.
