Hong Kong’s Upcoming Stablecoin Rules to Shake Up US Dollar Dominance, Deter Bigger Players

Hong Kong has reaffirmed its assist for stablecoins because it prepares to implement a brand new regulatory regime for fiat-referenced issuers in August, a transfer that some imagine may stifle aspirations for bigger gamers and problem U.S. greenback dominance within the area.

On Saturday, Hong Kong’s Monetary Secretary, Paul Chan, linked the event of stablecoins with a rising urge for food throughout the World South and elements of Asia for settling commerce in native currencies, relatively than counting on the U.S. greenback.

Writing in his official weblog following a go to to Tianjin and Beijing for the World Financial Discussion board’s “Summer time Davos,” Chan stated, “stablecoins present a cheap various to the standard monetary system.”

Additionally they “have the potential to deliver adjustments to fee and capital market actions, together with cross-border funds,” the official added.

The feedback align carefully with Beijing’s broader push for de-dollarization, as China continues its efforts to internationalize the renminbi.

Because the world’s largest buying and selling nation since 2017, China’s world commerce footprint underscores rising demand for RMB settlement, and Hong Kong’s standing as the highest offshore RMB hub.

Hoping to shore up that dominance, Hong Kong’s upcoming laws, slated for August 1, will set up a licensing regime for fiat-referenced stablecoin issuers underneath the supervision of the Hong Kong Financial Authority. 

The legislation mandates strict compliance for licensed entities, together with reserve asset administration, par-value redemption, fund segregation, and AML controls.

Setting a excessive bar

Solely licensed entities might be permitted to concern or market stablecoins to retail buyers. Whereas the regime opens the door to multi-currency issuance by providing a extra world framework than some jurisdictions, analysts say the legislation units a excessive bar.

“Its capital requirement is roughly 3 times that of Singapore,” Sean Lee, co-founder of digital asset tech firm IDA—which focuses on creating regulated stablecoin infrastructure—informed Decrypt.

He referred to as the method progressive however extra more likely to entice home gamers than world giants like Circle or Tether.

Lee added that mandated Hong Kong-based reserves and operational presence make direct issuance by giant world companies unlikely. As an alternative, he expects skilled utilization of offshore stablecoins to persist via distribution companions.

Retail uptake seems restricted, particularly with Hong Kong’s mature home digital fee methods. However cross-border enterprise use stays promising. 

“Don’t underestimate the offshore CNH angle. That’s the first cause why the Hong Kong regime has the complete assist from Beijing,” Lee stated, referring to the offshore RMB traded exterior mainland China.

Nevertheless, regardless of theoretical value financial savings, stablecoin use could not but beat present choices. 

“When all prices are included, the end-to-end prices could not essentially be cheaper at this level compared to established gamers like Sensible,” Lee famous, citing a scarcity of liquidity on completely different currencies.

Different fintech gamers, corresponding to $6.2 billion valuation startup, Airwallex’s CEO Jack Zhang, have echoed that sentiment, albeit extra pessimistically.

 “I can’t see any methods stablecoin can cut back charges—off-ramping from stablecoin to recipient forex are far dearer than the FX interbank market,” he stated on X initially of this month.

Nonetheless, Lee stays optimistic that this can change. “In time, stablecoin-based transaction prices (together with FX) will turn into decrease and decrease,” he stated. 

Edited by Sebastian Sinclair