In the competition to dominate the future of money and finance, China has multiple ways to win. As the United States — the world’s largest financial power — continues to mull its approach to crypto regulation with the House Financial Services Committee expected to consider a bill next month, financial centers in places including London, Dubai and Singapore have sought to set themselves up as alternative crypto hubs. But thanks to Hong Kong, China is taking two approaches to crypto at once. On the mainland, Beijing has banned global crypto networks while developing and promoting more versions of next-generation monetary technology that provide greater control to the Chinese Communist Party’s government. But through its special administrative region in Hong Kong, Beijing has also been able to carve out a niche in the free-wheeling global markets for digital assets that would compete with other free-market financial hubs. Despite being denominated in dollars, the world’s most popular stablecoin, Tether, is owned by a Hong Kong-based company. Heading into summer, the crypto action in the region is heating up. Earlier this month, the Bank of China, a majority state-owned firm headquartered in Beijing, issued $28 million of debt on Ethereum through its Hong Kong-based investment arm. The move allows the government to take advantage of open blockchain networks for its own purposes without giving up its control over the financial activity of average citizens. Also this month, the Financial Times reported that regulators in Hong Kong are pressuring large banks in the region to provide banking services to crypto exchanges — inverting a dynamic in the U.S. where many banks are reluctant to take on crypto clients because of the industry’s unsettled legal status. And this morning, Hong Kong-based independent journalist Colin Wu reported that the region’s largest bank, HSBC, has begun offering clients access to Bitcoin and Ethereum ETFs. Representatives of the bank did not immediately respond to requests for comment. In effect, the existence of Hong Kong allows the Chinese Communist Party to exert internal financial controls on the mainland while impeding capital flight to bet on the potential of global crypto networks to disrupt money and finance. Inside China, Beijing will be able to keep the world’s biggest population and second-largest economy running on financial networks it designs and controls (and push trading partners to join them) — without giving up its ambitions to make China a player in the more unruly crypto networks used elsewhere. “They still see the value of this thing. You just can't do it in a country where capital is tightly controlled,” said Sean Lee, the Hong Kong-based founder of crypto startup Odsy, and an advisor to the Crypto Council for Innovation, a trade group — who described Hong Kong’s role in China’s approach to crypto as a natural extension of its existing role as an international financial hub. “They always need a place where capital can come in and out.”
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