Exchange Fund to sustain levels of crypto exposure

Cici Cao

Hong Kong's Exchange Fund, which backs the Hong Kong dollar, may have some exposure to crypto though it is not a target asset, according to the government.

It cannot be ruled out that there may be investments involving crypto-assets made by external managers appointed by the Hong Kong Monetary Authority in the course of their operations, said Joseph Chan Ho-lim, Under Secretary for Financial Services and the Treasury, in a written reply to a Legislative Council member.

However, the relevant proportion is minimal, Chan added.

The Exchange Fund, the de facto sovereign wealth fund of the HKMA, involves assets that can be held in Hong Kong dollars, foreign currencies, gold, silver, or in securities or assets considered appropriate after consultation.

The total assets of the Exchange Fund amounted to about HK$4 trillion as of the end of October, HK$118.8 billion lower than that at the end of September, according to HKMA data.

Hong Kong dollar and foreign currency assets decreased by HK$105 billion and HK$13.8 billion, respectively.

Virtual assets face growing recognition in the financial landscape.

Bitcoin, the world's biggest cryptocurrency, at one point this month stormed above US$100,000 (HK$780,000) - more than doubling year-on-year - following Donald Trump's reelection as US president.

Trump embraced digital assets during his campaign, promising to make the United States the "crypto capital of the planet" and to accumulate a national bitcoin stockpile.

Chan highlighted in his reply the government's efforts to support the development of digital assets.

In 2022, the government issued a Policy Statement on Virtual Assets Development in Hong Kong, enhancing the regulatory framework for virtual assets.

In 2023, it established a task force on promoting Web3 development, providing counsel on sustainable and responsible practices.

To further foster market development, the Securities and Futures Commission has implemented measures to clarify regulatory expectations, Chan said.

The SFC issued two circulars last year to enhance market clarity, respectively on intermediaries engaging in tokenized securities-related activities and on tokenization of SFC-authorized investment products to shed light on the regulatory expectations from an investor protection perspective.

This year, the regulator also announced a swift licensing process for virtual assets trading platforms, and the establishment of a consultative panel for licensed trading platforms, set to operate by early 2025.

In response to questions about the government's corresponding measures towards cryptocurrency heat, Chan reaffirmed the commitment of the Linked Exchange Rate System, also known as the peg system, to ensure the city's financial and monetary stability.

cici.cao@singtaonewscorp.com