Hong Kong lawmakers have approved a bill to regulate stablecoins, a type of cryptocurrency linked to reserve assets like fiat currencies.

The legislation, passed by the Legislative Council on May 21, will take effect later this year.

It requires stablecoin issuers to obtain a license from the Hong Kong Monetary Authority (HKMA) before selling or promoting these digital assets.

HKMA chief Eddie Yue Wai-man said the regulatory framework aims to be risk-based, pragmatic, and flexible, focusing on public protection.

The HKMA will hold further consultations on key aspects such as reserve requirements, segregation of client assets, risk management, and disclosure practices.

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🔗 Source: South China Morning Post

🧠 Food for thought

1️⃣ Hong Kong joins global regulatory divide with middle-path approach

Hong Kong’s “risk-based, pragmatic, and flexible” regulatory framework positions it between contrasting global approaches to stablecoin regulation.

While the EU’s Markets in Crypto-Assets Regulation (MiCA) imposes stringent restrictions including a ban on interest offerings and daily issuance caps, the US framework encourages innovation alongside consumer protection1.

This middle-path approach mirrors Hong Kong’s historical strategy of balancing regulation with innovation to maintain its status as a financial hub.

By requiring licensing while avoiding overly restrictive measures, Hong Kong may attract stablecoin issuers seeking regulatory clarity without excessive constraints.

The timing is significant as global stablecoin trading volume reached $27.6 trillion in 2024, surpassing the combined transaction volume of Visa and Mastercard, indicating substantial market potential2.

2️⃣ HKMA continues tradition of adaptive financial oversight

The stablecoin regulation represents the latest evolution in Hong Kong’s long history of adapting its regulatory approach to emerging financial technologies.

The Hong Kong Monetary Authority’s roots trace back to 1935 with the establishment of the Exchange Fund, which has continuously evolved its mandate, from initially backing banknote issuance to expanding in 1976 to manage fiscal reserves3.

This pattern of regulatory adaptation has been consistent throughout Hong Kong’s financial history, with the HKMA responding to changing market conditions while maintaining monetary stability.

The new stablecoin framework follows this tradition by addressing digital assets as they become increasingly significant in global finance.

The legislation’s emphasis on reserve requirements and client asset segregation4 reflects the HKMA’s consistent focus on stability and public protection through appropriate oversight.

3️⃣ Economic benefits extend beyond trading to cross-border payments

While trading volumes capture headlines, stablecoins offer significant potential for transforming cross-border payments and remittances in emerging markets.

Countries including India, Nigeria, and Indonesia have reported high levels of stablecoin adoption, driven by the need for efficient payment solutions in regions with limited banking infrastructure5.

By establishing a clear regulatory framework, Hong Kong positions itself to capture value from these broader use cases beyond speculation.

The increasing integration of stablecoins by major financial companies like PayPal and Stripe demonstrates the growing mainstream application of these digital assets in payment systems6.

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