With help from Derek Robertson
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.”
Belgium’s digital chief is calling for the European Union to beef up its technical know-how about the algorithms that power apps like TikTok.
Speaking to POLITICO Europe’s Morning Tech newsletter, Mathieu Michel, the country’s junior minister for digitization, called for a “European Algorithms Agency” to give the bloc a more solid means of analyzing those kinds of algorithms before making laws.
“We have to understand how an algorithm works before we’re able to identify whether certain things are acceptable or not,” Michel said. “Having a structure that allows [us] to come up with an objective analysis of the algorithms, that’s something that is important.”
Michel’s home country will assume the presidency of the European Council, the body that sets the EU’s political and regulatory priorities, after Spain, which in its own right is hoping to establish itself as a leader on AI within the union after the U.K.’s exit. — Derek Robertson
The ever-growing web of regulatory approaches to AI across the globe almost begs for a simpler means of classification.
In a recent blog post, researcher Brent Skorup offered one such alternative, comparing “unbundled” regulatory regimes to “bundled” ones. The unbundled approach, in the very simple words of Biden White House adviser Tim Wu:
“Don’t: Create an AI-focused federal agency
Do: Enforce the laws on the books.”
Simple enough… in theory. Skorup, a free-marketeer at George Mason University’s Mercatus Center, said that when existing laws or agencies are brought to bear on a technology that predates them there will inevitably be clashes over how to proceed between figures like himself and those who don’t share his philosophy, like Wu or the anti-monopolist FTC Chair Lina Khan.
But he argues those disputes are preferable to overly prescriptive AI laws like those soon to be implemented in the EU. “U.S. lawmakers and regulators have a choice: Create new, vague ‘AI laws’ or apply existing laws — like antitrust, copyright, Sec. 230, product liability, and constitutional law — to new technologies,” Skorup writes. “U.S. policymakers and U.S. companies seem to be leaning towards the latter approach, which is a good sign for AI investment and legal clarity. But there is a growing chorus for taking the horizontal, EU-style approach.” — Derek Robertson
Stay in touch with the whole team: Ben Schreckinger ([email protected]); Derek Robertson ([email protected]); Mohar Chatterjee ([email protected]); and Steve Heuser ([email protected]). Follow us @DigitalFuture on Twitter.
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