Hong Kong Stablecoin Bill Passed: Impact on Hong Kong and Mainland Virtual Money Industry

Recently, the Legislative Council of the Hong Kong Special Administrative Region passed the "Stablecoin Regulation Draft," becoming the first jurisdiction in the world to establish a comprehensive regulatory system for fiat-backed stablecoins. This legislative move not only provides a clear legal framework for Hong Kong's Virtual Money industry but also brings profound positive impacts on the development of the Virtual Money sector in Hong Kong and mainland China by balancing financial innovation with risk prevention. This article will analyze the positive significance of the passage of this bill from two dimensions: Hong Kong and mainland China, combining policy background, industry impact, and future trends.

1. Positive Impact on Hong Kong's Virtual Money Industry

(1) Strengthen Hong Kong's status as a global digital asset center.

Hong Kong, as an international financial center, has been making continuous efforts in the virtual asset sector in recent years. The passage of the "Stablecoin Regulation Draft" further solidifies Hong Kong's leadership position in the global digital asset market. The bill clarifies the regulatory requirements for stablecoin issuers, including a registration capital threshold of 25 million HKD, a 1:1 reserve asset backing issuance volume, and mandatory unconditional redemption rights. These strict yet clear regulatory standards provide a transparent compliance environment for the stablecoin market, helping to attract global investors and enterprises to choose Hong Kong as the operational center for stablecoin business.

The Hong Kong Monetary Authority plans to quickly issue regulatory guidelines after the bill is passed and open license applications by the end of 2025. This will encourage enterprises, including several financial institutions, to actively participate and accelerate the development and application of the HKD stablecoin. The launch of the HKD stablecoin will not only enhance Hong Kong's competitiveness in the cross-border payment sector but also promote the development of the Web3 ecosystem, injecting new vitality into Hong Kong's digital economy. For example, the HKD stablecoin can be used for efficient, low-cost cross-border trade settlement, further consolidating Hong Kong's position as an Asian financial hub.

(2) Promote financial innovation and technology development

The passage of the "Stablecoin Regulation Draft" indicates that the Hong Kong government views stablecoins as an important component of digital financial infrastructure, rather than a marginal technology. The bill provides a clear compliance pathway for stablecoin issuers, encouraging businesses to innovate within the regulatory framework. For instance, a large e-commerce group has entered the "sandbox" testing phase for stablecoins in Hong Kong, demonstrating corporate confidence in the Hong Kong market. This "regulatory sandbox" mechanism allows companies to test innovative products in a controlled environment, reducing compliance costs for startups while providing space for technological iteration.

Stablecoins, as a core component of decentralized finance (DeFi), will promote the further development of fields such as Web3, NFTs, and the Metaverse through their legalization. Since 2022, the Hong Kong government has begun to lay out regulations for virtual assets, starting public consultations in 2023 and launching a regulatory sandbox in 2024, demonstrating long-term support for the Web3 ecosystem. The passage of the bill will further stimulate the application of blockchain technology in areas such as payments, settlements, and supply chain finance, creating a vibrant digital asset ecosystem in Hong Kong.

(3) Enhance market confidence and investor protection

The virtual asset industry is facing a trust crisis due to some past events. Hong Kong has effectively reduced market risk by establishing a comprehensive regulatory framework for stablecoins, emphasizing reserve asset management, liquidity, and anti-money laundering (AML) requirements. These measures ensure the sustainability of stablecoin issuers' business models while providing investors with higher security assurances. For example, the mandatory 1:1 reserve asset requirement and unconditional redemption rights can effectively prevent the risk of stablecoin decoupling and enhance market trust in stablecoins.

In addition, Hong Kong's regulatory framework seeks to strike a balance between innovation and protection, demonstrating an open and inclusive attitude. This balance not only attracts the attention of global crypto companies but also provides local retail investors with safer investment channels. For example, a certain bank has taken the lead in launching virtual money trading services, supporting Bitcoin and Ethereum transactions, and may further expand to stablecoin trading in the future. This pioneering demonstration effect will encourage more financial institutions to enter the virtual money market, expanding Hong Kong's investor base.

(4) Promote cross-border payment and financial connectivity

Stablecoins have advantages of low cost and high efficiency in cross-border payments, and the stablecoin legislation in Hong Kong lays the foundation for the widespread application of Hong Kong dollar stablecoins. The launch of Hong Kong dollar stablecoins will optimize the financial connectivity between Hong Kong and other regions in Asia, especially in the context of the "Belt and Road" initiative and the development of the Guangdong-Hong Kong-Macao Greater Bay Area. For example, Hong Kong dollar stablecoins can be used in cross-border e-commerce, trade settlement, and supply chain finance, reducing transaction costs and improving settlement efficiency. This not only helps Hong Kong consolidate its position as a global trade center but also provides local enterprises with more digital financial tools.

2. Positive Impact on the Virtual Money Industry in Mainland China

(1) Provide regulatory experience reference for the mainland

The regulatory attitude towards Virtual Money in mainland China is relatively strict, prohibiting cryptocurrency business transactions and ICOs, but it maintains an open attitude towards blockchain technology. The passage of the "stablecoin regulation draft" in Hong Kong provides a reference regulatory model for the mainland. Hong Kong's regulatory framework emphasizes the balance of compliance, risk prevention, and financial innovation, which aligns with the mainland's policy goals of promoting the application of blockchain technology in the financial sector (such as digital RMB).

For example, Hong Kong's "regulatory sandbox" mechanism provides a testing environment for stablecoin issuance, and this model may inspire the mainland to explore similar pilot mechanisms in specific areas (such as central bank digital currency CBDC or supply chain finance). As a bridge between the mainland and international markets, Hong Kong's successful experience may drive the mainland to gradually loosen regulatory restrictions on virtual assets such as stablecoins in the future, especially in the field of stablecoins pegged to the Hong Kong dollar or Renminbi.

(2) Promote the internationalization of the Renminbi

Hong Kong's stablecoin legislation provides a testing ground for non-US dollar stablecoins (such as those pegged to the Hong Kong dollar or the Renminbi). Although current regulatory focus in Hong Kong is primarily on Hong Kong dollar stablecoins, its open regulatory attitude offers possibilities for the exploration of Renminbi stablecoins. As an offshore center for the Renminbi, Hong Kong boasts a mature financial infrastructure and an international market environment, making it suitable as a testing ground for Renminbi stablecoins. If Renminbi stablecoins succeed in Hong Kong, it will further promote the use of Renminbi in global payments and settlements, aiding the process of Renminbi internationalization.

For example, the stablecoin regulatory framework in Hong Kong may provide compliant channels for mainland enterprises to issue RMB-pegged stablecoins through Hong Kong for cross-border trade and investment. This model can not only enhance the international acceptance of the RMB but also provide new financing and payment tools for mainland enterprises, strengthening their competitiveness in the global market.

(3) Promote the collaborative development of financial technology in the Guangdong-Hong Kong-Macau Greater Bay Area

The Guangdong-Hong Kong-Macao Greater Bay Area is an important region for the application of financial technology and blockchain technology driven by mainland China. The stablecoin legislation in Hong Kong provides new opportunities for the collaborative development of financial technology in the Greater Bay Area. For example, the Hong Kong dollar stablecoin can complement the digital renminbi, jointly serving the cross-border payment, trade financing, and supply chain finance needs of the Greater Bay Area. Hong Kong's regulatory experience and mature financial market can provide compliance guidance for Greater Bay Area enterprises, attracting more mainland technology companies to enter international markets through Hong Kong.

In addition, virtual asset trading platforms and stablecoin issuers in Hong Kong may collaborate with mainland enterprises to develop blockchain-based financial products. For example, stablecoins can be used in supply chain finance platforms in the Greater Bay Area to address the financing difficulties faced by small and medium-sized enterprises. This cross-regional cooperation will promote the integration and development of the financial technology ecosystem in the Greater Bay Area.

(4) Indirectly stimulate the application of blockchain technology in the region.

Although the mainland adopts a cautious attitude towards cryptocurrency trading, blockchain technology has been widely applied in areas such as supply chain finance, cross-border payments, and digital identity verification. Hong Kong's stablecoin legislation provides a successful case for the commercialization of blockchain technology, which may indirectly stimulate mainland enterprises to accelerate the research and application of blockchain technology within a compliance framework. For example, Hong Kong's stablecoin "sandbox" testing experience can offer technical references for mainland enterprises, promoting the implementation of blockchain in the fintech sector.

3. Future Trends and Outlook

The passage of the Hong Kong "Stablecoin Regulation Draft" marks a new stage in global stablecoin regulation. In the future, Hong Kong may become a global testing ground for non-USD stablecoins, attracting more international companies to enter its market. At the same time, Hong Kong's regulatory model may serve as a reference for other countries and regions, promoting the coordination and development of global stablecoin regulation.

For mainland China, Hong Kong's successful experience may encourage regulators to gradually relax restrictions on Virtual Money in the future, especially in areas related to the internationalization of the Renminbi. Mainland enterprises can participate in the global digital asset market through compliant channels in Hong Kong, enhancing their international competitiveness. In addition, the fintech cooperation between Hong Kong and the mainland will be further deepened under the framework of the Guangdong-Hong Kong-Macao Greater Bay Area, forming a model of regional coordinated development.

4. Conclusion

The passage of the Hong Kong "Stablecoin Regulation Draft" has profound positive implications for the virtual money industry in Hong Kong and mainland China. For Hong Kong, the bill solidifies its position as a global digital asset hub, promoting the development of financial innovation, investor protection, and cross-border payments. For mainland China, Hong Kong's regulatory experience provides a reference, indirectly stimulating the internationalization of the Renminbi, the coordinated development of financial technology in the Guangdong-Hong Kong-Macau Greater Bay Area, and the application of blockchain technology. In the future, as the Hong Kong stablecoin market matures and further cooperation with the mainland progresses, both sides will occupy a more important position in the global digital finance arena, injecting new momentum into regional economic development.