### The Hong Kong Monetary Authority (HKMA) is taking necessary precautions against algorithmic stablecoins as an antecedent to the implosion of Terra’s UST in 2022.

In a press release, the Hong Kong Monetary Authority (HKMA) stated that it intended to put out comprehensive regulations on digital assets and stablecoins. The HKMA expounded that algorithmic stablecoins will not be approved, and the regulatory agency plans to build a complete regulatory framework for stablecoins, and one of the guiding principles will be that the tokens will be fully backed and tradeable.


  <blockquote className="twitter-tweet"><p lang="en" dir="ltr"><a href="https://twitter.com/hashtag/cryptonews?src=hash&ref_src=twsrc%5Etfw">#cryptonews</a>: Hong Kong 🇭🇰 will not tolerate algorithmic <a href="https://twitter.com/hashtag/stablecoins?src=hash&ref_src=twsrc%5Etfw">#stablecoins</a> in new regulation. The chief financial regulator will demand all stablecoin issuers back up their values with underlying reserve assets at all times.</p>— CoinMarketCap (@CoinMarketCap) <a href="https://twitter.com/CoinMarketCap/status/1620655810421342217?ref_src=twsrc%5Etfw">February 1, 2023</a></blockquote>


The Hong Kong Monetary Authority (HKMA), the country's central bank and financial regulatory body, is in charge of preserving monetary stability and advancing the effectiveness, stability, and integrity of the nation's financial system. Additionally, the HKMA issues and controls the local dollar currency, administers the city's official foreign exchange reserves, and offers banking services to the government. In 1993, the Office of the Exchange Fund was replaced by the HKMA, which assumed its duties for monetary management and financial stability.



The HKMA's commitment to stability and financial soundness has made it one of the most highly regarded central banks in the world. Its effective management of monetary policy and ability to respond quickly to changing economic conditions have helped maintain Hong Kong's position as a leading international financial center.



Since the algorithmic stablecoin known as TerraUSD (UST) experienced a catastrophic failure in May 2022, many crypto investors have gotten weary of the approach to dealing with algorithmic stablecoins. TerraUST's design likely rendered it more unstable than other stablecoins because it was not collateralized as its founder claimed.



In conclusion, the Hong Kong Monetary Authority (HKMA) has highlighted caution on the possible dangers posed by algorithmic stablecoins. The recent events that involved Terra's UST, in which its peg to the US dollar became weaker and the value of the stablecoin plummeted, have raised concerns about the stability and reliability of these kinds of tokens and highlight the necessity for careful consideration and effective regulation of new asset classes such as cryptocurrencies.

Like any other central banks and financial regulators around the world, the HKMA is actively monitoring developments in the cryptocurrency space and may take action to protect consumers and ensure stability in the financial system if necessary.

You may read the official press release published by the HKMA [here](https://www.hkma.gov.hk/eng/news-and-media/press-releases/2022/01/20220112-3/).

The Hong Kong Monetary Authority (HKMA) is taking necessary precautions against algorithmic stablecoins as an antecedent to the implosion of Terra’s UST in 2022.

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