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Hong Kong releases pro-crypto budget, signals increased CBDC integration with China

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(Kitco News) - Hong Kong released its 2023-2024 budget on Wednesday, and in his accompanying speech, Financial Secretary Paul Chan reaffirmed some of the recent pro-crypto initiatives of his government and announced new areas of support for the digital assets industry.

Addressing the potential of Web3 for the Special Administrative Region (HKSAR), Chan was very bullish on the technology.

“Every generation of technological reform brings about new applications and fresh opportunities, and even disrupts the mode of business operation,” Chan said, adding that even though he considers Web3 to still be “in its start-up period,” he sees huge potential for it. “We must keep up with the times and seize this golden opportunity to spearhead innovation development.”

Chan said the government will allocate HKD$50 million ($6.5 million) to the Web3 Cyberport “to expedite the Web3 ecosystem development” through such activities as hosting international seminars that “enable the industry and enterprises to better grasp frontier development and to promote cross-sectoral business co-operation” along with workshops for young people.

He also addressed Hong Kong’s recent moves to prepare legislation that would regulate cryptocurrencies, calling virtual assets (VA) “an integral part of a vibrant Web3 ecosystem.” Referring to the government’s October policy statement on VA, he noted that the market responded proactively.

“Over the past few months, a large number of innovative enterprises with potential have been considering setting up business in Hong Kong,” he said. “For the next step, I will establish and lead a task force on VA development, with members from relevant policy bureaux, financial regulators and market participants, to provide recommendations on the sustainable and responsible development of the sector.”

Chan also said Hong Kong would move ahead with efforts to integrate China’s CBDC with their own program. “We will continue to take forward the application testing and preparatory work for various financial technology (Fintech) infrastructure projects, including "e-HKD" and "e-CNY" as cross-boundary payment facilities,” he said.

Activity related to the digital yuan has been ramping up in recent months. In early January, the People’s Bank of China (PBoC) included the e-CNY in its official cash reports for the first time, with the digital fiat accounting for 13.61 billion yuan (roughly $2 billion) in circulation. That figure represents roughly 0.13% of the 10.5 trillion yuan in circulation at the end of December.

In January, the PBoC released an update indicating that the central bank plans to continue expanding the e-CNY pilot program to allow for additional testing and exploration of the possible applications of a digital RMB throughout the country and to “realize the interconnection between the digital renminbi system and traditional electronic payment tools.”

Hong Kong has been making a lot of headlines in recent weeks as they continue to push forward with blockchain technology initiatives. Last week, rumors began to circulate that the government was preparing crypto legislation to be enacted this year, and Monday, the Securities and Futures Commission (SFC) launched a public consultation on the “requirements for operators of virtual asset trading platforms” ahead of the new licensing regime scheduled to take effect on June 1, 2023.

Tuesday saw reports that Beijing has given behind-the-scenes support for Hong Kong’s crypto aspirations, with sources telling Bloomberg that representatives from China’s Liaison Office and other officials have been regular attendees at Hong Kong’s crypto gatherings over the past months and have adopted a friendly approach to working with companies.

This perceived openness has led to an influx of crypto firms from the mainland and overseas who are now pushing to register their businesses and return to the Chinese territory more than 15 months after Beijing banned the industry, forcing many to establish their businesses abroad.

Under the new licensing regime announced on Monday and scheduled to take effect on June 1, all centralized crypto trading platforms that conduct business in Hong Kong or actively market to Hong Kong investors will need to be licensed by the SFC. The proposed regulatory requirements for virtual asset trading platforms are based on those of the existing Securities and Futures Ordinance regime.

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