Stablecoins: New possibilities opened up for cross-border use of digital yuan

Hong Kong's introduction of the world's first dedicated legislation on fiat-referenced stablecoins — a type of cryptocurrency — marks a significant milestone in the city's push to solidify its status as a global financial hub that pioneers in virtual asset regulation, financial experts said.

The move also reflects China's broader strategic ambition to strengthen its financial heft in the digital age, the experts said. They added that the legislation may open up new possibilities for cross-border use of the digital yuan, or e-CNY, while providing a reference for any potential adoption of stablecoins in other parts of the country.

A stablecoin is a digital currency that is built on blockchain technology and pegged to fiat currencies or other assets at a designated exchange rate to maintain a stable value. Fiat-referenced stablecoins are backed by fiat currencies, which are government-issued money not backed by a physical asset such as gold.

In late May, the Legislative Council of the Hong Kong Special Administrative Region passed the Stablecoins Bill, establishing a licensing regime for fiat-referenced stablecoins issuers. The bill became law on May 30 when it was gazetted as the Stablecoins Ordinance.

While the commencement date of the ordinance is currently unknown, the Hong Kong Monetary Authority said it expects the ordinance to take effect this year.

"Hong Kong's Stablecoins Ordinance marks the world's first official legislation targeting stablecoins, setting a policy benchmark globally," said Song Ke, executive vice-president of Renmin University of China's Shenzhen Research Institute.

Song, who is also deputy director of the university's International Monetary Institute, said the ordinance provides a clear legal foundation for the development of the stablecoin market in Hong Kong, offering regulatory certainty for institutions and investors and paving the way for innovation in the regional stablecoin ecosystem.

Under the new regime, anyone who issues fiat-referenced stablecoins in Hong Kong or issues stablecoins backed by the Hong Kong dollar, whether within or outside the city, must obtain a regulatory license.

Stablecoins have drawn regulatory attention globally. On May 19, the United States Senate advanced its own bill to regulate stablecoins, called the GENIUS Act.

Yuan Shuai, deputy secretary-general of Z-Park Internet of Things Industry Alliance, said Hong Kong's Stablecoins Ordinance has significant importance for the global financial hub amid intensifying global competition over stablecoin leadership.

"It provides institutional support for Hong Kong to attract global stablecoin issuers and related enterprises, further consolidating Hong Kong's position as an international financial hub and enhancing its voice and competitiveness in the global virtual asset market," Yuan said.

Song, from Renmin University of China, added that the legislation also opens new possibilities for the cross-border use of the e-CNY, the digital version of the renminbi, representing a positive factory for the internationalization of the Chinese currency.

"By enabling conversion into stablecoins pegged to the Hong Kong dollar, the e-CNY could be integrated into the broader stablecoin ecosystem, expanding its role in cross-border settlements," Song said, adding that such synergy may allow China to explore innovations for cross-border payments, improve efficiency and reduce reliance on SWIFT, the world's leading system of secure financial messaging services.

He said that while issuing a renminbi-backed stablecoin is not yet feasible, Hong Kong's ordinance can serve as a regulatory pilot, offering insights for the central government in evaluating stablecoin oversight effectiveness.

"Hong Kong's more open regulatory environment for the crypto industry will present opportunities for the subsidiaries of mainland banks to gain experience in the market," Moody's Investors Service said in its research report.

Relevant Chinese stocks surged amid the advancement of the legislation, with H-shares of Lianlian DigiTech, a digital payment solution provider in Zhejiang province, closing 64.27 percent up on Monday before retreating afterward.

"Licensed banks and major fintech firms may issue Hong Kong dollar-backed stablecoins within the year," said Wang Peng, an associate researcher at the Beijing Academy of Social Sciences.

Key application scenarios would include cross-border payments, securities settlement and decentralized finance — blockchain-based financial services operating without traditional intermediaries like banks, Wang said.

ZA Bank, a digital bank in Hong Kong, said it believes the new legislation brings greater clarity and confidence to the stablecoin market, contributing positively to the long-term development of the industry.