Introduction
The Hong Kong Monetary Authority (HKMA) has taken a significant step in shaping the future of digital finance with the passage of the Stablecoin Ordinance in May 2025. Set to take effect on August 1, 2025, this landmark legislation introduces a licensing regime for issuers of fiat-collateralized stablecoins, reinforcing Hong Kong’s commitment to financial stability and innovation. As global interest in stablecoins surges—from regulatory advancements in the EU and the U.S. to high-profile market entries—the HKMA emphasizes the need for a balanced, risk-aware approach to ensure safe and sustainable growth.
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Global Developments in Stablecoin Regulation
While Hong Kong finalizes its regulatory framework, international progress continues apace. The European Union implemented the Markets in Crypto-Assets (MiCA) regulation in 2024, establishing one of the world’s most comprehensive crypto oversight systems. In the United States, legislative discussions around stablecoin regulation have advanced meaningfully, reflecting growing recognition of their systemic importance. Meanwhile, a major stablecoin issuer made headlines with a successful public listing in early June 2025, signaling increasing institutional acceptance.
This momentum has elevated “stablecoins” from niche crypto jargon to mainstream financial discourse. Media coverage now spans from basic education and real-world use cases to analyses of their potential to disrupt traditional payment systems and reshape financial infrastructure.
However, as the head of Hong Kong’s financial regulator, I believe it is crucial to temper enthusiasm with prudence. While the benefits of stablecoins—such as faster cross-border payments and improved financial inclusion—are well-documented, our primary responsibility is to manage risks and ensure long-term resilience.
Understanding Stablecoins: A Payment Tool, Not an Investment
A foundational principle guiding HKMA’s approach is that stablecoins are payment tools, not speculative assets. Built on blockchain technology, they are designed to maintain a stable value—typically pegged to a fiat currency like the U.S. dollar—and do not offer capital appreciation.
In practical terms, stablecoins can enhance efficiency in scenarios such as:
- Cross-border remittances
- Instant settlements in trade finance
- Tokenized financial transactions
Yet they are not alone in this space. Other emerging payment solutions include:
- Central bank digital currencies (CBDCs), such as those being tested in multilateral platforms like Project mBridge
- Tokenized commercial bank deposits
- Expanded linkages between real-time payment systems across jurisdictions
Each solution has unique technical, regulatory, and adoption challenges. Their ultimate success will depend on market demand, interoperability, and trust—all of which hinge on robust oversight.
Risk Management and International Coordination
As stablecoins bridge traditional finance and digital assets, they introduce both inherent risks—such as reserve adequacy and operational security—and spillover risks, including threats to monetary policy transmission and financial stability.
To address these concerns, the HKMA actively participates in global regulatory efforts, particularly through the Financial Stability Board (FSB), established under the G20. The FSB’s 2023 Global Framework for the Regulation of Crypto-Asset Activities provides a benchmark for national regulators, emphasizing principles like:
- Full backing of reserves
- Transparent disclosure
- Strong governance and risk controls
- Anti-money laundering (AML) compliance
Hong Kong’s licensing regime is closely aligned with these international standards. We are also currently leading an FSB initiative to assess how these frameworks are being implemented globally—a critical step toward harmonizing supervision and enabling effective cross-border cooperation.
Given the borderless nature of blockchain networks, isolated regulatory efforts are insufficient. Only through coordinated oversight can we prevent regulatory arbitrage, combat illicit finance, and foster a safe environment for innovation.
The Stablecoin Issuer Licensing Regime
Hong Kong is among the first major financial centers to establish a formal licensing system for stablecoin issuers. The Stablecoin Ordinance follows the principle of "same activity, same risk, same regulation," ensuring that entities performing similar functions face comparable oversight—whether operating in traditional banking or decentralized finance.
High Barriers to Entry
Recognizing the risks involved—ranging from reserve mismanagement to operational failures—the HKMA has set a high threshold for licensing. We expect only a handful of licenses to be granted initially. Applicants must demonstrate:
- A clearly defined and viable use case
- Robust operational infrastructure
- Strong governance and compliance frameworks
- Market credibility and user trust
Key Regulatory Requirements
To qualify for a license, stablecoin issuers must meet stringent criteria across several domains:
1. Reserve Asset Management
Issuers must hold sufficient, high-quality liquid assets (e.g., cash and short-term government securities) to fully back outstanding tokens at all times. These reserves must be legally segregated and subject to regular audits by licensed professionals.
2. Price Stability Mechanisms
The system must ensure the stablecoin maintains its peg under various market conditions. This includes mechanisms for minting and redeeming tokens at par value.
3. Redemption Policies
Users must be able to redeem stablecoins for fiat currency promptly and without undue restrictions. Redemption processes must be transparent and accessible.
4. Technology and Cybersecurity
Given the digital nature of stablecoins, issuers must implement advanced cybersecurity measures, disaster recovery plans, and ongoing penetration testing.
5. Anti-Money Laundering (AML) Compliance
Issuers are required to conduct customer due diligence (CDD), monitor transactions, and report suspicious activities in line with Hong Kong’s AML laws.
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For cross-border operations, applicants must also show they—or their partners—hold necessary licenses in other jurisdictions and comply with local regulations.
Ensuring Sustainable Business Models
Beyond compliance, the HKMA evaluates the long-term viability of proposed business models. Factors considered include:
- Size and engagement of target user base
- Breadth and depth of application scenarios
- Strength of partner ecosystems
- Sensitivity to macroeconomic conditions (e.g., interest rate fluctuations)
Applicants must present detailed plans showing how their stablecoin addresses real economic pain points—such as high remittance costs or slow settlement times—and how they will maintain usage volume while remaining compliant.
They must also prove access to sufficient technical and financial resources to operate sustainably—even during periods of market stress.
The Role of the Stablecoin Issuer Sandbox
In early 2024, the HKMA launched a Stablecoin Issuer Sandbox to engage with firms exploring fiat-backed stablecoin issuance in Hong Kong. The sandbox allows us to better understand business models, communicate regulatory expectations, and provide preliminary guidance.
However, participation is not mandatory for future license applications, nor does it guarantee approval. All applicants will be assessed against the same rigorous standards when formal applications open on August 1, 2025.
Looking Ahead: Innovation Within Boundaries
Hong Kong is building a regulatory framework that balances innovation with responsibility. By aligning with international best practices while tailoring rules to local realities, we aim to position Hong Kong as a trusted hub for digital asset development.
As major economies advance their own stablecoin regulations, collaboration will be key. The HKMA remains committed to working with global counterparts to promote financial stability, consumer protection, and technological progress.
Frequently Asked Questions (FAQ)
Q: What is a stablecoin?
A: A stablecoin is a type of digital currency designed to maintain a stable value by being backed by reserves—usually fiat money like the U.S. dollar. It operates on blockchain networks and serves primarily as a payment or settlement tool.
Q: Is the HKMA’s stablecoin regulation only for Hong Kong-based companies?
A: No. The licensing regime applies to any entity issuing fiat-collateralized stablecoins usable in Hong Kong, regardless of where it is incorporated.
Q: Can stablecoins be used for investment?
A: No. Stablecoins are not investment products. They are intended for transactions and payments and do not offer returns or capital gains.
Q: How does the HKMA ensure reserve transparency?
A: Licensed issuers must undergo regular independent audits of their reserves and publish summary reports monthly to ensure full backing at all times.
Q: Will there be many stablecoin licenses issued?
A: Initially, only a limited number are expected due to high entry standards focused on risk management, operational resilience, and market readiness.
Q: What happens if a stablecoin issuer fails?
A: Licensees must have resolution plans in place to protect users. In case of insolvency, reserve assets are legally segregated and prioritized for redemption.
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