Hong Kong will officially implement a comprehensive stablecoin regulation on August 1, 2025.
This regulatory milestone transforms stablecoins from a speculative cryptocurrency narrative to a programmable financial infrastructure. This framework positions Hong Kong as a strategic hub for compliant digital finance.
Regulatory Changes... Market Dynamics
Significance: The passage of the GENIUS Act legalizes dollar-based stablecoins in the United States. Therefore, the current dollar dominance in stablecoins reinforces dollar hegemony through government bond reserves. For example, Tether holds approximately $100 billion in US Treasury bonds. With the GENIUS Act, non-financial companies in the US can now issue dollar stablecoins, expanding global dollar dominance.
This development raises concerns about monetary sovereignty in Europe and Asia. Hong Kong's proactive legislative framework, enacted in May, provides a strategic alternative. Particularly, Hong Kong's offshore RMB market capacity creates a unique positioning opportunity with China. This regulatory foresight addresses increasing geopolitical tensions in digital currency control.
Latest Update: The new regime replaces Hong Kong's "whitelist and sandbox" model. Instead, a comprehensive licensing system supervised by the HKMA will manage stablecoin operations. Applicants must demonstrate 100% liquid asset support and robust governance structures.
Requirements include a minimum paid-up capital of 25 million Hong Kong dollars and a local corporate presence. Additionally, full customer identity verification (KYC) compliance and transparent audit trails are essential. These strict standards ensure only mature operators enter the market.
Background Context: Over 50 institutions are reportedly preparing stablecoin license applications for Hong Kong's regulated framework. However, the HKMA emphasizes "quality over quantity" and aims for the first approvals by early 2026. Major financial institutions demonstrate significant commitment to Hong Kong's digital asset ecosystem.
Standard Chartered has established a joint venture with Animoca Brands and HKT. Their collaboration aims to issue an HKD-based stablecoin connecting traditional and digital finance. JD.com's blockchain subsidiary has registered "JCOIN" and "JOYCOIN" trademarks to support cross-border payments.
Geopolitical Impact
Broad Implications: These developments indicate that stablecoins have evolved beyond cryptocurrency trading tools. Digital currencies are now used as essential infrastructure for trade finance operations. Real-world asset (RWA) tokenization and programmable money systems are gaining institutional adoption.
JD.com CEO Richard Liu recently stated, "Through stablecoin licenses, we can achieve currency exchange between global corporations, reduce cross-border payment costs by 90%, and improve efficiency within 10 seconds." This performance transformation attracts traditional financial institutions seeking operational efficiency.
Geopolitical Implications: Hong Kong's flexible legal tender-linked approach accommodates single and basket currency models. This framework creates opportunities for offshore RMB (CNH) stablecoins. Market analysts view this as a strategic window for China's yuan internationalization strategy.
Frequently cited examples include Morgan Stanley and Ping An Securities identifying potential development of a dual-rail architecture. Eastern and Western financial systems can be connected through competitive digital ecosystems. Consequently, this structure challenges the traditional dollar-centric global finance.
History and Future Outlook
Historical Precedent: China established an offshore RMB market in 2003 to promote international currency. This strategy accelerated after the 2009 financial crisis revealed dollar system vulnerabilities. Meanwhile, the proportion of yuan-settled trade increased from 15% in 2020 to approximately 30% in 2024.
China's state-supported Blockchain Service Network creates a parallel Web3 infrastructure supporting alternative systems. Potential global-scale adoption led by Belt and Road Initiative participating countries serves as a supporting factor.
Potential Risks: Regulatory acceptance across jurisdictions is crucial in challenging dollar dominance. Trade settlement rates are 54% dollar versus 4% yuan. Foreign exchange transactions show an 88% dollar versus 7% yuan gap.
| Foreign Exchange Value Ratio | Trade Settlement Ratio | Foreign Exchange Transaction Ratio | |
| Dollar | 57% | 54% | 88% |
| Euro | 20% | 30% | 31% |
| Pound | 5% | 4% | 13% |
| Yen | 6% | 4% | 17% |
| Yuan | 2% | 4% | 7% |
Since 2009, crisis financial operations have been denominated in dollars despite yuan internationalization efforts. Conversely, offshore RMB deposits peaked at 700 billion yuan before significantly contracting. Ultimately, capital controls limited arbitrage flows, restricting progress despite financial product expansion.
