Introduction
The Hong Kong Monetary Authority (HKMA) has taken a significant step toward regulating digital assets 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-backed stablecoins—digital tokens pegged to traditional currencies like the US dollar or Hong Kong dollar. As global interest in stablecoins surges, driven by developments such as the EU’s MiCA regulations and rising institutional adoption, Hong Kong is positioning itself at the forefront of responsible innovation in digital finance.
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This article explores the rationale behind Hong Kong’s regulatory framework, the core principles guiding its implementation, and what it means for the future of digital payments and financial stability.
Global Trends in Stablecoin Regulation
While Hong Kong finalizes its regulatory approach, 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 regulatory frameworks.
- In the United States, bipartisan efforts have advanced legislation targeting stablecoin oversight, with growing consensus on the need for federal standards.
- A major U.S.-based stablecoin issuer went public in early June 2025, seeing strong market performance post-listing—an indicator of increasing institutional confidence.
These developments reflect a broader shift: stablecoins are no longer niche instruments confined to cryptocurrency enthusiasts. They’re entering mainstream financial discourse, sparking debates about their role in payments, monetary policy, and financial inclusion.
However, as Head of the HKMA, I believe it's crucial to temper enthusiasm with caution. While the benefits of stablecoins—such as faster cross-border transactions and improved financial efficiency—are well-documented, we must also confront the risks they pose to financial stability, investor protection, and anti-money laundering (AML) compliance.
Understanding Stablecoins: Payment Tools, Not Investment Vehicles
A foundational principle guiding our regulatory stance is this: stablecoins are payment tools, not speculative assets.
Unlike cryptocurrencies such as Bitcoin or Ethereum, stablecoins are designed to maintain a stable value by being backed—fully or partially—by reserve assets like cash, short-term government securities, or other high-quality liquid assets. Their primary function is to facilitate transactions within digital ecosystems, especially across borders where traditional banking infrastructure can be slow and costly.
In this context, stablecoins sit alongside other emerging payment innovations:
- Central Bank Digital Currencies (CBDCs) developed through multilateral collaborations
- Tokenized commercial bank deposits
- Cross-border linkages between real-time payment systems
Each of these solutions offers unique advantages and trade-offs. Their long-term viability will ultimately be determined by market demand, technological resilience, and regulatory clarity.
Crucially, stablecoins serve as a bridge between traditional finance and the digital asset economy. As their usage expands, so too does the importance of managing both internal risks (e.g., reserve adequacy, operational security) and externalities (e.g., systemic contagion, AML/CFT vulnerabilities).
Aligning with International Standards
The HKMA has actively participated in global regulatory coordination, particularly through the Financial Stability Board (FSB) under the G20. The FSB’s 2023 Global Framework for the Regulation of Crypto-Asset Activities provides key guidance on how jurisdictions should supervise stablecoin issuers.
Hong Kong’s licensing regime is built upon this international foundation, ensuring alignment with best practices while adapting to local market conditions. We are currently leading an FSB review assessing how these global standards are being implemented across different jurisdictions—an effort that strengthens cross-border supervisory cooperation and promotes consistent oversight.
Given the borderless nature of blockchain technology, harmonized regulation is essential. Features like pseudonymity and instant cross-jurisdictional transfers create unique challenges, especially in combating illicit finance. By sharing insights and coordinating enforcement, regulators can help ensure that innovation does not come at the cost of financial integrity.
The Stablecoin Issuer Licensing Regime
Hong Kong is among the first major financial centers to establish a formal licensing system for stablecoin issuers. The new Stablecoin Ordinance adheres to the principle of “same activity, same risk, same regulation”, meaning that entities performing similar financial functions should face comparable regulatory requirements regardless of whether they operate on traditional or digital platforms.
High Barriers to Entry
To safeguard monetary stability and user trust, the licensing threshold is intentionally high. We expect only a small number of licenses to be granted initially. Applicants must demonstrate:
- Real-world use cases that address tangible economic needs
- Robust operational models capable of sustainable growth
- Market credibility through partnerships and user adoption
Only those who can prove resilience under stress—both financially and technologically—will qualify.
Key Regulatory Requirements
Licensing candidates must meet rigorous standards across multiple domains:
- Reserve asset management: Full backing by high-quality, liquid assets; regular independent audits
- Price stability mechanisms: Reliable systems to maintain the peg under varying market conditions
- Redemption policies: Clear, accessible processes for users to exchange stablecoins for fiat currency
- Cybersecurity and operational resilience: Protection against breaches and service disruptions
- AML/CFT compliance: Comprehensive customer due diligence and transaction monitoring
For issuers targeting international markets, compliance must extend beyond Hong Kong. Applicants must ensure both themselves and their partners hold necessary licenses abroad and adhere to all applicable laws.
Promoting Sustainable Market Development
Beyond compliance, we emphasize long-term sustainability. A viable stablecoin business must show more than technical capability—it must offer real value.
Applicants must present detailed plans showing how their stablecoin will:
- Solve specific pain points in payments or finance
- Achieve and maintain meaningful user engagement
- Operate profitably across economic cycles
- Maintain adequate capital and technical resources
To support early-stage exploration, the HKMA launched a Stablecoin Issuer Sandbox in early 2024. This initiative allows potential issuers to engage with regulators, test business models, and understand supervisory expectations. However, participation is neither mandatory nor a guarantee of future licensing. All applications will be assessed against uniform, stringent criteria.
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Looking Ahead: A Balanced Path Forward
Hong Kong’s approach balances innovation with prudence. By building a regulatory framework that aligns with international norms yet reflects local realities, we aim to foster a healthy, responsible digital asset ecosystem.
As major economies roll out their own stablecoin rules, coordinated action becomes even more vital. The HKMA remains committed to working with global counterparts to promote financial stability, prevent regulatory arbitrage, and support legitimate innovation.
Frequently Asked Questions (FAQ)
Q: What is a stablecoin?
A: A stablecoin is a type of digital token designed to maintain a stable value by being backed by reserves such as cash or short-term government bonds. It functions primarily as a digital payment tool rather than an investment.
Q: Is the HKMA’s stablecoin regulation effective immediately?
A: The Stablecoin Ordinance was passed in May 2025 and will come into force on August 1, 2025. From that date, the HKMA will begin accepting license applications.
Q: Do I need to join the HKMA sandbox to apply for a license?
A: No. Participation in the Stablecoin Issuer Sandbox is optional and does not guarantee approval. All applicants will be evaluated based on the same strict regulatory criteria.
Q: Can foreign companies apply for a stablecoin license in Hong Kong?
A: Yes, provided they meet all regulatory requirements, including having robust compliance programs covering both Hong Kong and any other jurisdictions where they operate.
Q: How does Hong Kong’s framework compare to MiCA in the EU?
A: Both frameworks emphasize full reserve backing, transparency, and consumer protection. Hong Kong’s regime is closely aligned with MiCA but tailored to our role as an international financial hub with strong ties to Asian markets.
Q: Are there limits on how many licenses will be issued?
A: There is no fixed cap, but initial approvals are expected to be limited due to high entry barriers focused on financial soundness, operational resilience, and market utility.
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The journey toward safe and sustainable stablecoin development is just beginning. With clear rules, strong oversight, and collaborative innovation, Hong Kong is well-positioned to lead the way in building a trustworthy digital financial future.