Hong Kong Dollar Peg : Interview with Leo Weese ②

Leo Weese is a co-founder of the Bitcoin Association of Hong Kong and a key figure in the city’s crypto community. He was born in Italy but grew up speaking German and encountered Bitcoin in 2011. In 2012, while studying statistics in Hong Kong, he began to learn how Bitcoin works and was fascinated by it. He is still arranging Bitcoin events and works in the information security industry.

Leo Weese

Interview Date : 31st August 2020

License Issues and Ambiguity

Money transmission licenses in Hong Kong are required if you are exchanging cash, for example, Yen to US dollars. Such Money Service Operation licenses are needed for exchange activities, and this license is relatively easy to obtain as it does not come with a lot of restrictions. It makes your business a regulated business. This means there is a clear expectation of what roles you are supposed to follow. Bitcoin businesses could, by some interpretations, fall into this law. However, the customs and license department made it very clear that these crypto businesses and regular businesses are to be kept separate. Meaning, if you have an existing license for the exchange between US dollars to Hong Kong dollars, then you are not allowed to exchange Bitcoin. The legislative council in Hong Kong has yet to pass any new laws and regulations that specify how to deal with cryptocurrencies and crypto businesses. These kinds of issues were very much expected to happen.The government, authorities, and police would tell us around 2016, that is how it will go on for some time. A cryptocurrency license would be in the making and yet the things that never reached the light of day. This was never represented by the government or given any consideration. Theoretically, from a legal perspective, you can run a Hong Kong Bitcoin exchange without much hassle. However, practically you will have to find a bank. You will need to find banking relations, but that is close to impossible. You cannot find a bank because the banks did not know what the legal position of Bitcoin is. They say just knowing that Bitcoin is legal is not enough for them. They need to know what the regulatory burdens exactly are around Bitcoin as well.

Then there is this additional issue of licensing in Hong Kong. If you have a Money Service Operation license or a banking license, you cannot not deal with Bitcoin. You cannot mix these two industries by law. On the other end, exchanges that are related to crypto are not able to find a bank. This includes exchanges that use Tether, in-between cryptocurrency trading, and that allow derivative spreading. Even derivative businesses are a licensed activity just like options and securities are, so it is not always easy. If you trade security tokens or ICOs, these will also not be considered securities, which means that you cannot trade with those either.

Online and In-person Meet-ups

It is quite amazing that a couple of firms have been making it quite far despite the legal uncertainties. It is just that they cannot publicly say we are a Hong Kong company. Their activities are often not licensed in Hong Kong, but rather licensed in another country, as the legal framework is much clearer. People often have engineers or traders who work for them, but they say “I work for another country”.

Our events have mainly been virtual in 2020. This has drawn a bit of a different crowd than the crowd it would have drawn a year ago. Today, some enthusiasts show a more politically sensitive side. It is rewarding to be in this industry when the prices go up. Besides that, I think depending on what you are looking for, it is more rewarding to be in crypto blockchains as it is far more acceptable here. Talking about Bitcoin still has the sound of something being illicit, especially in the financial services circles. Talking about blockchain or Bitcoin and crypto sounds a lot more welcoming. Bitcoin is a bit associated with being a scam, and that is not very welcomed at the conferences. Also, the big money is being made in the general crypto coins nowadays.

Why did you quit being the CEO?

Essentially, the community just needs to be a lot broader. It cannot just be a single individual in the middle. If people associate the Bitcoin Association with only me, it will turn into a problem in the long term. Also, many other competent people should step up. People have their ideas, and these ideas need to be played. If it is only me, the community probably develops in only one direction. However, if we keep on rotating, the community can grow and expand in different ways.

We are still having our ritual meet-ups. We are trying to formalize our education effort in a way to be able to neutrally and objectively speak about Bitcoin, and teach others of how it works. We have our current director, Bryan Cheung, who started an interview series, something that is not exactly a podcast. Nevertheless, he is experimenting in a new form to engage with the online community.

How to Keep it Together Financially

It has been very hard at times to make money just with Bitcoin. Bitcoin is just a tool, and for you to put some money in mining and in building those tools around it. The kind of economics that Bitcoin companies face is difficult. In my specialization as an Information Security operator in online privacy fields, it is a little different. Online privacy is something more interesting for people from a content marketing perspective, and people want to read about it. Information security is a direct concern for many people, especially since cryptocurrencies have picked up, and Bitcoin has become more popular. Information security has become a tangible skill, so there is definitely a lot of demand for teaching people how to not lose your Bitcoin.

Obstacles need to be Overcome Globally

Hong Kong has a lot of obstacles. There are going to be many difficulties to overcome, in regards to Bitcoin. The main problem is going to be how Hong Kong is going to stay relevant in a crypto world that is entirely online. The kind of businesses that nowadays see customers are businesses that did not need to be anywhere. Another thing to be considered is why a business would want to be in Hong Kong? Even if you can convince them to be Hong Kong, how can you turn that into an immediate benefit for the community? These are relevant issues that companies are going to face globally. It has already become quite visible since the start of this year. Places like California or New York that heavily rely on income taxes have seen their income depleting. People have started questioning, “if I can work remotely, do I need to be in California?”

Hong Kong Dollar Peg

The Hong Kong currency issue is not that much about the gold reserve, but more about the currency peg. The Hong Kong dollar is pegged to the US dollar, and this peg is quite interesting in that it is fully backed. So, for every 7.75 to 7.85 Hong Kong dollars, there is 1 US dollar. In the history of currency pegs, this is a unique thing. This means that the peg is more or less indestructible, but there are still a lot of interesting political fears. For example, we have to ask if it is desirable that this peg is being kept. There might be some political turning point for when it might be desirable to change this peg. When that happens, how would that impact the local economy?

Right now, the Hong Kong economy is linked to the US and European economy, even more than to China probably. However, as China has grown in the last decade, the dependency on the international market has changed quite a bit. Many Hong Kong companies make a good portion of their income from China today. Thus, they might find it more desirable to be pegged to the Chinese currency.

Also, whenever the US dollar is appreciated or depreciated, it has a direct effect on the Hong Kong dollar. What if the government wants the Hong Kong dollar to be more integrated with the Chinese economy, and pulls away from the US and European economy? They could use the currency peg where the Hong Kong dollars could be pegged to the Chinese currency as a tool to integrate Hong Kong to China. All of that creates a lot of uncertainties, and today that uncertainty is the biggest issue for a Hong Kong business to deal with. Theoretically, the status quo has not been challenged much except for that everything is up to debate currently. The discussion of whether the currency peg would or wouldn’t continue would just have been unthinkable 2 years ago. But today, many debates are going on, and things are going to change in the future.

Interviewer , Editor : Lina Kamada



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