Paxos has gained prominence in the global and Singaporean Stablecoin markets. At the Singapore FinTech Festival, the city-state granted in-license approvals to stablecoin issuers Paxos Digital Singapore Pte and StraitsX. The Monetary Authority of Singapore’s Chief Executive, Ravi Menon, cautiously endorsed the form of cryptocurrency, typically pegged to a fiat currency at 1 to 1 and backed by reserves such as cash and bonds.
Menon also made it clear that the city-state is taking a cautious stance on cryptocurrency, acknowledging that many investors have suffered substantial losses. Despite this, Singapore is betting that stablecoins will play an increasingly important role in the future of financial services. The decision to regulate them is part of the city-state’s ambition to become a digital asset hub for institutional investors.
The MAS will require reserves backing stablecoins to be held in low-risk and highly liquid assets that must equal or exceed the value of the stablecoin in circulation at all times. Stablecoins issued outside of Singapore or pegged to other currencies or assets will continue to be subject to the existing digital payment tokens (DPT) regulatory regime.
Japan is also taking an active interest in stablecoins, although their approach is different from the centralized MAS-led strategy in Singapore. For instance, three Japanese banks said they would use a system developed by Web3 infrastructure company GU Technologies to experiment with stablecoins backed by assets. Also, Mitsubishi UFJ Financial Group and domestic blockchain firms Datachain, Progmat Coin and Soramitsu have begun working on a project to launch a stablecoin interoperability pilot.
In June, Japan’s revised Payment Services Law went into effect, authorizing banks, trust companies and funds transfer operators to issue stablecoins. Stablecoins must be pegged to the yen or other legal tender and guarantee holders the right to redeem them at face value.
In contrast to Singapore and Japan, the two largest countries by population in Asia, China and India, remain skeptical towards stablecoins. This could be a significant challenge for stablecoins to gain a strong foothold in trade and investment flows in the Asia-Pacific region. The Chinese government has not yet expressed interest in stablecoins, while the Reserve Bank of India (RBI) has said “no” to them, viewing them as infringing on its monetary policy sovereignty.
The evolution of the regulatory regime in Hong Kong may offer some clues as to how Beijing is thinking about stablecoins. Ultimately, if it comes down to a binary choice between CBDCs and stablecoins, most central bankers are likely to go with the former. Whether there is room for both across the region as seems to be in the case in Singapore and Japan remains to be seen.
