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

Hong Kong has reaffirmed its support for stablecoins as it prepares to implement a new regulatory regime for fiat-referenced issuers in August, a move that some believe could stifle aspirations for larger players and challenge U.S. dollar dominance in the region.

On Saturday, Hong Kong’s Financial Secretary, Paul Chan, linked the development of stablecoins with a growing appetite across the Global South and parts of Asia for settling trade in local currencies, rather than relying on the U.S. dollar.

Writing in his official blog following a visit to Tianjin and Beijing for the World Economic Forum’s “Summer Davos,” Chan said, “stablecoins provide a cost-effective alternative to the traditional financial system.”

They also “have the potential to bring changes to payment and capital market activities, including cross-border payments,” the official added.

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

As the world’s largest trading country since 2017, China’s global trade footprint underscores rising demand for RMB settlement, and Hong Kong’s status as the top offshore RMB hub.

Hoping to shore up that dominance, Hong Kong’s upcoming legislation, slated for August 1, will establish a licensing regime for fiat-referenced stablecoin issuers under the supervision of the Hong Kong Monetary Authority. 

The law mandates strict compliance for licensed entities, including reserve asset management, par-value redemption, fund segregation, and AML controls.

Setting a high bar

Only licensed entities will be permitted to issue or market stablecoins to retail investors. While the regime opens the door to multi-currency issuance by offering a more global framework than some jurisdictions, analysts say the law sets a high bar.

“Its capital requirement is roughly three times that of Singapore,” Sean Lee, co-founder of digital asset tech company IDA—which focuses on developing regulated stablecoin infrastructure—told Decrypt.

He called the approach progressive but more likely to attract domestic players than global giants like Circle or Tether.

Lee added that mandated Hong Kong-based reserves and operational presence make direct issuance by large global firms unlikely. Instead, he expects professional usage of offshore stablecoins to persist through distribution partners.

Retail uptake appears limited, especially with Hong Kong’s mature domestic digital payment systems. But cross-border business use remains promising. 

“Do not underestimate the offshore CNH angle. That’s the primary reason why the Hong Kong regime has the full support from Beijing,” Lee said, referring to the offshore RMB traded outside mainland China.

However, despite theoretical cost savings, stablecoin use may not yet beat existing options. 

“When all costs are included, the end-to-end costs may not necessarily be cheaper at this point in comparison to established players like Wise,” Lee noted, citing a lack of liquidity on different currencies.

Other fintech players, such as $6.2 billion valuation startup, Airwallex’s CEO Jack Zhang, have echoed that sentiment, albeit more pessimistically.

 “I can’t see any ways stablecoin can reduce fees—off-ramping from stablecoin to recipient currency are far more expensive than the FX interbank market,” he said on X at the start of this month.

Still, Lee remains optimistic that this will change. “In time, stablecoin-based transaction costs (including FX) will become lower and lower,” he said. 

Edited by Sebastian Sinclair