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China is intensifying efforts to curb the use of cryptocurrencies such as Tether (USDT) in foreign exchange trading more than two years after imposing a significant crypto ban. The Supreme People’s Procuratorate (SPP), the highest legal prosecution agency in mainland China, issued a joint statement with the State Administration of Foreign Exchange (SAFE), cautioning the public against using USDT as an intermediary for trading the Chinese yuan with other fiat currencies.
The authorities urged local officials to implement stricter measures against the stablecoin in cross-border foreign exchange transactions, declaring the use of USDT in exchanging local and foreign currencies as illegal. The SPP and SAFE emphasized the need for improved coordination at the local level to “punish fraudulent foreign exchange purchases, illegal foreign exchange transactions, and other foreign exchange-related illegal and criminal activities” in accordance with the law.
Simultaneously, Hong Kong is contemplating the acceptance and regulation of “fiat-referenced stablecoins” (FRS), with a proposal that issuers obtain a specific local license. A joint consultation paper from the Financial Services and the Treasury Bureau and the Hong Kong Monetary Authority (HKMA) outlines the definition of fiat-referenced stablecoins and mandates that companies “actively marketing their issuance of FRS to the public of Hong Kong” be licensed by the HKMA.
The criteria for obtaining an HKMA license include the full backing of all circulating stablecoins with reserves “at least equal to the par value,” segregation and safekeeping of reserve assets, and regular disclosure and reporting. Notably, the document specifies that algorithmic stablecoins will not qualify for a license.
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