With stablecoin law, Hong Kong looks for ‘first-mover’ edge over US, Singapore in payments

Hong Kong is looking to 'secure a leading role in global payment systems', one analyst says, as law comes ahead of a similar US stablecoin bill

With the passage of one of the world's most comprehensive stablecoin laws two weeks ago, Hong Kong is looking to stay at the forefront of global finance while addressing lessons from past industry setbacks, according to analysts.

Being a "first mover" in stablecoin legislation "reflects the determination" of the city's government to "unlock value that they see in this sector, given the number of hurdles from past incidents", said Melvin Deng, CEO of digital asset trading firm QCP Capital.

Hong Kong is one of the first jurisdictions to introduce detailed regulations governing the issuance of stablecoins - cryptocurrencies backed by a reference asset, typically fiat currency like the US dollar - coming ahead of the US Genius Act currently making its way through the Senate. The Hong Kong ordinance takes effect on August 1 .

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The law also gives the market a lead in Asia, with a friendlier regulatory stance than Singapore's framework introduced last year. South Korea's newly elected president, Lee Jae-myung, has also signalled his intent to move quickly on a campaign pledge to allow private issuance of stablecoins backed by the Korean won.

Combined with the city's vast offshore yuan holdings and China's restricted use of cryptocurrencies on the mainland, the new law has fanned hopes that Hong Kong could secure a prominent spot in the stablecoin market, which is currently dominated by US dollar-backed tokens such as Tether's USDT and Circle's USDC.

"Hong Kong's near-simultaneous legislative push with the United States underscores the intensifying East-West contest over financial influence in the digital era," said Bo Tang, assistant director at the Hong Kong University of Science and Technology's Institute for Financial Research.

Hong Kong is aiming to "secure a leading role in global payment systems amid the rapid digitalisation of trade", Tang added.

Previously popular mainly as a trading tool among crypto enthusiasts, recent regulatory moves from governments are set to boost stablecoin use in the real economy, particularly as a cross-border payment tool, according to industry players .

Hong Kong is more than two years into an ambitious bet on becoming an international hub for virtual assets. A previous law requiring a licence for cryptocurrency exchanges has faced criticism over stringent and costly rules that many do not see as having generated local business activity.

Stablecoins offer more efficient financial infrastructure for Chinese enterprises going global, "especially in emerging markets where US dollar stablecoin payments are becoming increasingly prevalent", Tang said.

Hong Kong is also the "ideal testing ground" for a yuan-backed stablecoin, according to Tang.

Experience gained from Hong Kong dollar-backed stablecoins, some of which are currently being tested through a government-backed sandbox, could support the development of offshore yuan stablecoins, Tang said. That would contribute to China's effort to internationalise the renminbi "in a world gradually moving toward 'de-dollarisation'", he added.

"An offshore yuan stablecoin market will be very interesting for the global economy, because increased velocity of money flows can lead to greater efficiency," QCP's Deng said.

A yuan stablecoin could enable real-time settlement and reduce cross-border transaction costs by up to 90 per cent, according to Tang, addressing a long-standing pain point for small-value transactions among countries participating in China's Belt and Road Initiative.

Jingdong Coinlink, a subsidiary of Chinese e-commerce giant JD.com , has recently emerged as one of the bigger players in this space, as it is already planning a Hong Kong dollar stablecoin. CEO Teddy Liu said last week the company may even issue an offshore yuan stablecoin, but added that would only come with Beijing's approval.

There are no clear rules governing the issuance of yuan stablecoins specifically. The new law requires a licence for issuers of any stablecoins in the city or Hong Kong dollar-backed stablecoins anywhere in the world.

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This article originally appeared on the South China Morning Post (www.scmp.com), the leading news media reporting on China and Asia.

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