Ever since the China-led central bank digital currency project mBridge was launched several years ago, there have been whispers that its ultimate goal was to develop an alternative payments rail that could circumvent the U.S.-dominated international financial system. That is because mBridge aims to establish direct links between the central banks of its participants, allowing money to be sent outside of the existing correspondent banking system. It was primarily the involvement of the Bank of International Settlements (BIS) in mBridge that gave the project an appearance of neutrality. Yet with the news that BIS is considering shutting down the project, it seems clear the CBDC cross-border payments initiative cannot be separated from geopolitical tensions.
South Korea has long had an enthusiastic cryptocurrency investing community. Over the past 18 months, that community has grown briskly. Data compiled by South Korean regulators show that the number of crypto investors in the country increased 21% year-on-year in the first half of 2024 to 7.78 million, which is about 15% of the South Korea population of 52 million. During the same period, the average daily trading volume of cryptocurrencies jumped 67% to 6 trillion won while the market value of cryptocurrencies in South Korea rose 27% to 55.3 trillion won.
Hong Kong’s financial regulators and at least some in the industry seem to believe that the city’s future as a financial hub depends on its embrace of cryptocurrency. For the past two years, Hong Kong has been relentlessly pitching itself as a digital assets hub in an effort to regain ground lost to Singapore and mainland China. The city-state has emerged as a larger and more important fintech hub, while mainland Chinese stock exchanges are attracting companies to list that might have once chosen to go public in Hong Kong. While it can be argued that Hong Kong would be better served by focusing less on an industry that remains problematic in many respects, its big bet on crypto might end up paying off big.
The Indian government has long eyed cryptocurrencies warily, viewing them largely as contributing to money-laundering risk and challenging the central bank’s monetary authority. Though India has stopped short of outright banning digital assets – or a de facto ban like what China has – it has nonetheless made investing in them smoothly a challenging process – especially the 30% tax on gains from cryptocurrency. Nevertheless, crypto remains popular among with Indians, with a recent Chainalysis study showing that India leads the world in crypto adoption.
Singapore is continuing to take a measured approach to digital assets as seen by the growing prevalence of stablecoin payments in the city-state. In the second quarter, stablecoin payments reached a new high of US$1 billion in Singapore, according to data from blockchain research firm Chainalysis. With the announcement of stablecoin regulations in August 2023, Singapore bet that these “safer” cryptocurrencies have staying power and will play an increasingly important role in the future of financial services.
It was inevitable that Hong Kong’s much-hyped cryptocurrency initiative would run into some serious challenges. We are not surprised to learn that the city’s regulators are not satisfied with the compliance level at some “deemed to be licensed” exchanges operating in the city. While demand for digital assets remains strong in many markets, and Hong Kong has a strong foundation as a financial services hub on which it can build, the crypto sector itself remains immature and prone to malfeasance while there is no global consensus on how to manage digital asset flows.
2024 might be remembered as a turning point for central bank digital currencies (CBDCs) – the year when interest in them began to significantly wane. In the case of India, while the government seems determined to push forward with the digital rupee, retail users are more circumspect. The Reserve Bank of India (RBI) highlights its estimation of 5 million digital rupee users. If we stop to consider that India has more than 1.4 billion people, then less than ½ of 1% of the population is not a particularly strong adoption rate – especially for something that has such strong government backing.
Cryptocurrency crime committed by the Democratic People’s Republic of Korea (DPRK) has become so pervasive that it requires a stronger international effort to bring under control. With that in mind, the U.S. Department of State and the Ministry of Foreign Affairs of the Republic of Korea (ROK) co-hosted an event about the issue in New York City on August 27.
Every few months, it seems that rumors start circulating in the cryptocurrency community about a possible liberalization of China’s strict digital asset controls. The rumors rarely have any basis in reality, and this time is no different. A number of cryptocurrency news sites have published stories over the past few weeks suggesting change could be afoot, citing a legal victory for Tron blockchain founder Justin Sun in Chinese court.
Hong Kong seems determined to become a major hub for digital assets and adopting a stablecoin regime is a key part of that policy. However, crypto bros hoping for a highly permissive regime appear to be out of luck. The city’s stablecoin regulations have changed very little from the ones proposed in December 2023. They require issuers of fiat currency-backed tokens to obtain a license from the Hong Kong Monetary Authority (HKMA), that stablecoins be fully backed by reserve assets “at any given point in time” and that issuers publish monthly confirmation of those assets from an independent auditor.
JPMorgan estimates that global corporates move nearly US$23.5 trillion across countries each year, equivalent to roughly 25% of global GDP. Since they rely on what the bank calls “sub-optimal wholesale cross-border payment processes,” annual transaction costs for the companies have reached US$120 billion. This is where atomic settlement comes in – and where the ambitious blockchain firm Partior – which was founded by JPMorgan, DBS and Temasek sees a large market opportunity.
The hype is being separated from the reality when it comes to retail central bank digital currencies (CBDCs) in Asia, and adoption is underwhelming. Nearly five years after China launched its first digital renminbi (e-CNY) trials, only two other Asian countries actually have a functional retail CBDC: India (though it remains in a pilot stage) and Cambodia.
For more than three years, the Bank of International Settlements (BIS) and the central banks of China, Hong Kong, Thailand and the United Arab Emirates (UAE) have been working on a cross-border central bank digital currency (CBDC) project known as mBridge. In a nutshell, the project aims to improve efficiency, speed and transparency in cross-border payments.
Taiwan’s Financial Supervisory Commission (FSC) has historically taken a hands-off approach to cryptocurrency focused on segregating the local digital assets ecosystem from the banking system – which it wants to protect from volatility and risk. As long as banks stay away from digital assets, the FSC is willing to let local crypto exchanges operate with a high degree of autonomy provided they pay their taxes and keep on the straight and narrow. However, Taiwan has since the collapse of FTX been dealing with a surge in crypto-related crime, both money laundering and fraud. Criminals are exploiting unsuspecting investors and taking advantage of limited knowledge of digital assets among the general public, lawmakers and regulators.