Better safe than sorry – that seems to be why authorities have delayed the stablecoin roll-out. Industry players had expected the Hong Kong Monetary Authority (HKMA), the city’s de facto central bank, to announce the granting of a small number of stablecoin licences at the end of March. But the date came and went. The regulatory review process appears to be taking longer, given the regulators’ well-known cautious stance. But the policy – to make Hong Kong a digital-asset hub with stablecoins playing a key role – has not changed. There is no need to rush. Rather, to gain people’s confidence, it’s best to iron out any issue and avoid technical glitches or bugs.

As a type of cryptocurrency designed to maintain a fixed value by being pegged to a stable asset, such as the Hong Kong dollar, stablecoins promise to facilitate payments and remittances. With rising cross-border transactions and global remittances, such as those by Hong Kong’s army of domestic workers, these crypto-coins could further democratise fintech for bosses and workers alike.

After assessing 36 applications, only a handful are expected to meet the HKMA’s stringent regulatory approach under the Stablecoin Ordinance that took effect last August. It is likely that only the city’s most established banks will qualify, as HSBC and Standard Chartered have been most frequently mentioned. Certainly, any issuer must have public confidence and credibility with the capital markets. The new licensing regime will initially focus on the local currency. The HKMA has set a high bar for licence holders who must meet strict capital, reserve and redemption standards designed to ensure stablecoins remain backed and redeemable at all times.
An ongoing local experiment involves tokenisation projects, including tokenised deposits, which represent bank deposits as digital tokens on a blockchain.

Stablecoins are often seen as mainly a payment tool, but they can be much more. Every derivative financial product needs to anchor its value to a stable asset. A stablecoin can serve as a convenient anchor for crypto-derivative products. More commonly, when people make cross-border transactions, there are layers and middlemen involved, all of which increase costs and time. The same applies to remittances.

As Hong Kong works to fortify financial stability and strengthen its global position, stablecoins can provide both a firewall and a testing ground for innovations based on blockchain technology.