 |
| Bitcoin, ethereum and the stablecoin USDT are promoted at a cryptocurrency store in Hong Kong on July 29, 2025. (Photo: Peter Parks / AFP) |
The Hong Kong Stablecoin Ordinance, released by the Hong Kong Monetary Authority, took effect recently, establishing comprehensive licensing and regulatory guidelines for stablecoin transactions. This move positions Hong Kong as the world's first jurisdiction to systematically regulate the issuance of stablecoin — a type of cryptocurrency whose value is pegged to a real-world asset such as the U.S. dollar, a commodity or a basket of assets.The hoped-for stability aims to leverage the benefits of cryptocurrency (speed, low cost, decentralized transactions) with the reliability of traditional assets.
Hong Kong has become a pioneer in institutional and technological innovation and in harmonizing internal and external rules. Its instituting a new type of globally oriented platform for compliant stablecoin transactions is timely. The initiative represents a significant opportunity for Hong Kong to further cement its evolving role as a financial hub. It's also a crucial step in China's broader efforts toward financial opening-up and currency internationalization.At present, stablecoin as an asset has transitioned from a gray area into a new era of compliance management. The issuance of new types of currencies is essentially part of the competition among nations in the digital age for dominance in currency issuance.
Stablecoins utilize distributed ledger technology and are transferred, stored and traded in electronic form. These assets serve not only as a medium of exchange in the crypto market but also as an extension of sovereign currencies in the digital age. Behind this shift lies an ongoing reshaping of the global monetary power structure.In a legislative process that took three years to bear fruit, the HKMA released consultation documents on crypto assets and stablecoin in 2022, leading to the passage of the Stablecoin Ordinance by the Hong Kong Legislative Council in May. Currently, the United States, the European Union, Hong Kong and Singapore have all established compliance frameworks. The U.S. has introduced the Guaranteeing Essential National Infrastructure in U.S. stablecoins, known as the GENIUS act, while the EU has enacted the Markets in Crypto-Assets Regulation (MiCA).
As the absolute dominant player, the U.S. strategy leverages the U.S. dollar's status as the global reserve currency to extend its influence into decentralized finance (DeFi) and cross-border payments via stablecoin. In essence, U.S. dollar-backed stablecoin represents the extension of dollar hegemony into the digital finance realm.As of July 2025, the total market value of global stablecoin reached $263.6 billion, with USDT (Tether) and USDC (Circle) — both pegged to the U.S. dollar — accounting for 85 percent of the market value and 90 percent of trading volume. These stablecoins are the leaders in global digital asset trading and cross-border payments, demonstrating the rapid expansion of U.S. dollar-backed stablecoin in cross-border payments, international trade and personal finance.In regions such as Southeast Asia and Africa, small and medium-sized enterprises often opt for the USDT in cross-border remittances to circumvent traditional banking and SWIFT systems. This “informal dollarization” accelerates the U.S. dollar's penetration into developing economies. According to forecasts by BVNK, a UK-based stablecoin infrastructure company, the share of stablecoin in global cross-border payments is projected to soar from last year's 3 percent to 20 percent within the next five years, potentially reaching an order of magnitude of $60 trillion.
The GENIUS Act mandates that stablecoin issuers hold equivalent value of reserve assets, such as U.S. Treasury bonds or cash. This creates a new financial transaction loop for the U.S. dollar, namely U.S. dollar/dollar-backed stablecoin/global payments in cryptocurrency/U.S. Treasury notes. By enhancing its technological edge in global cross-border payments — for example, through developing fully collateralized shared stablecoins backed by U.S. Treasuries — the U.S. further solidifies the dominant status of the dollar and U.S. bonds in the global economic and financial systems.
Amid intensifying geopolitical competition, Hong Kong's strategic position stands out. Serving as both a global financial hub and a bridge between the Chinese mainland and the world, Hong Kong benefits from the flexibility of its institutions and rules under the “one country, two systems” framework, rather than simply copying models from the U.S. or Singapore. As a gateway to the mainland and with its extensive reach across the Asia Pacific region, Hong Kong is well-placed to emerge as a global clearing and payment hub for stablecoin as the global digital currency market continues to grow.
Looking ahead, Hong Kong-based stablecoin could pursue a dual track ecosystem, pegged to both the Hong Kong dollar (HKD) and the Chinese yuan (RMB). On one hand, it could leverage Hong Kong's sophisticated financial markets and active financial institutions using HKD-backed stablecoin to revolutionize cross-border payments.The HK monetary authority aims to connect the local Faster Payment System (FPS) with the People's Bank of China's Inter-Bank Payment System (IBPS). HKD-backed stablecoin could serve as a buffer to enhance clearing and settlement efficiency and reduce dependence on traditional systems such as SWIFT.Meanwhile, HKD-backed stablecoin could be used in tandem with the digital yuan, exploring interoperability mechanisms between the two. The goal is to pilot these mechanisms in regions such as the Guangdong-Hong Kong-Macao Greater Bay Area and eventually foster a regional digital payment loop.
On the other hand, offshore RMB-backed stablecoin could serve as a strategic fulcrum for the internationalization of the RMB. Although there are short-term challenges for Hong Kong in launching a compliant offshore RMB-backed stablecoin (RMB is not yet fully convertible), the policy framework for Hong Kong-based stablecoin has left this possibility open.In the future, if stablecoin pegged to offshore RMB could be introduced, it would open up a new path for the internationalization of the yuan. Therefore, the successful implementation of the Hong Kong-based stablecoin strategy is expected to reshape the cross-border payment landscape and provide a prudent and progressive Chinese approach to the evolution of the global digital financial system, carving out a stronger position in the global currency competition.
However, the development of Hong Kong-based stablecoin faces risks and challenges because of intensifying geopolitical competition. While the special administrative region permits multi-currency pegging, the GENIUS Act and MiCA stipulate that the reserve assets for USD- or EUR-backed stablecoin must be held within their respective jurisdictions. This could lead to duplicated compliance risks in cross-border transactions.Additionally, the risks of capital outflows and regulatory arbitrage need to be closely monitored. Given the high degree of openness in Hong Kong's financial market, the high liquidity of stablecoin could facilitate cross border capital transfers, thereby increasing the difficulty of managing capital accounts. As the RMB is not yet freely convertible under the capital account, the seamless cross border exchange of stablecoin could potentially disrupt the existing foreign exchange management system on the Chinese mainland.
