77 stablecoin license applications: How does Hong Kong choose?

Authors: Zhu Weisha, Zhang Feng

I. Introduction: A New Regulatory Landscape with Both Opportunities and Challenges

The Hong Kong Monetary Authority recently announced that as of August 31, 2025, a total of 77 institutions had expressed their intention to apply for stablecoin licenses, covering a wide range of entities including banks, technology companies, securities firms, and payment institutions. This data reflects both the market's high level of attention to Hong Kong's stablecoin regulatory framework and the resulting regulatory challenges and practical choices. Faced with such a large number of applications, the Hong Kong SAR government and financial regulators are caught in a difficult situation. Approving all of them would place enormous strain on regulatory resources. However, if only a few are approved, and the unapproved companies also meet the statutory requirements, this could undermine Hong Kong's reputation for the rule of law. The deeper question behind this approval dilemma is: How should Hong Kong seize the historical opportunity of stablecoin development while mitigating the potential financial risks?

II. The Nature of Stablecoin Competition: Competition Between Nations and the Call for Entrepreneurship

On the surface, stablecoin competition is a technological competition between companies, but in essence, it is a contest between nations' financial strength and institutional advantages. Fiat currency systems can be divided into three categories: standard currencies (such as the US dollar and the euro), anchor currencies (such as the Hong Kong dollar), and sovereign currencies (such as the Japanese yen and the Chinese yuan). The rise of US dollar-denominated stablecoins poses a challenge to all sovereign currencies, and many weaker sovereign currencies may gradually withdraw from the international market.

In this global competition, entrepreneurship plays a crucial role. Historically, financial innovation has often been driven by entrepreneurs. In 1694, Scottish entrepreneur William Paterson founded the Bank of England, resolving the British government's fiscal crisis and laying the foundation for the modern monetary system. In 1983, the entrepreneurial Financial Secretary, Richard Pang, spearheaded the implementation of the linked exchange rate system, rescuing Hong Kong from an exchange rate crisis and establishing the city as an international financial center. Today, Hong Kong stands at a critical juncture in the development of stablecoins, requiring a balance between risk management and innovation, which requires entrepreneurial spirit. Professional managers excel at implementing regulations but often exercise caution when faced with major decisions. Hong Kong needs to combine professional regulation with entrepreneurial innovation to seize the historic opportunity presented by stablecoin development.

III. Analysis of the Pros and Cons of Issuing Three Types of Stablecoins

(I) Hong Kong Dollar Stablecoin: Practical Constraints and Institutional Reconstruction

Hong Kong dollar stablecoins face obvious practical constraints. The Hong Kong dollar is linked to the US dollar under a linked exchange rate system, with fluctuations controlled within 1%, subject to market regulation by the HKMA. If multiple companies are allowed to issue Hong Kong dollar stablecoins, speculators may exploit the price difference between the US dollar, Hong Kong dollar, and stablecoins for arbitrage, resulting in uncontrollable risks.

Therefore, the issuance of Hong Kong dollar stablecoins should be restructured based on the existing monetary system. The best option is for the HKMA to designate three note-issuing banks (HSBC, Standard Chartered, and Bank of China (Hong Kong)) to issue a Hong Kong dollar stablecoin, leveraging the linked exchange rate system. This approach maximizes the use of the existing system while bringing the credit and stability of the stablecoin under the HKMA's purview. (II) US Dollar Stablecoin (USHK): A Major Opportunity for Hong Kong The US dollar stablecoin (USHK) offers significant development opportunities for Hong Kong. While the Federal Reserve is responsible for the stability of the US dollar, the HKMA only needs to ensure the peg between USHK and the US dollar. The issuance mechanism is similar to that of the Hong Kong dollar stablecoin, but the issuers can be expanded to include multiple qualified institutions, rather than just three banks. USHK has clear advantages: Innovative income mechanism: The HKMA can distribute a portion of the interest on its US Treasury bonds to the issuing institutions. This makes it significantly more attractive than Tether (which does not pay interest) and institutions restricted by the US "Genius Act." Credit transparency: The HKMA has 42 years of accumulated credibility, and its audit and operational processes are mature and transparent, far surpassing private institutions such as Tether.

Unified brand effect: The unified use of the USHK brand is conducive to economies of scale and international acceptance, and better represents the characteristics of Hong Kong as a financial center.

Implementation path

Ethereum is preferred as the issuance chain because of its stable consensus mechanism and high transparency;

At the same time, a transparent centralized database based on Ethereum will be established to strengthen AML/CFT management;

Special implementation rules will be formulated to ensure compliance with bank-level KYC, AML and CFT standards.

From a geopolitical perspective, the United States, as a country ruled by law, is unlikely to interfere with Hong Kong's linked exchange rate system or the issuance of USDT-like products. Therefore, the launch of USHK has international legitimacy.

(III) RMB Stablecoin (CNHK): A Limited Option for Cautious Advancement

A similar mechanism can also be applied to the issuance of the RMB stablecoin CNHK, but it should be strictly limited to the offshore RMB market, with a controllable scale (approximately 3 trillion yuan) and without affecting mainland financial stability. Attempting to promote RMB internationalization through this approach is constrained by the reality of the RMB's non-convertibility, making the aforementioned approach inapplicable. Some have suggested introducing gold-backed RMB stablecoins, but this idea is outdated and short-sighted, lacking a deep understanding of cryptocurrencies, which emerged in the internet age. The development of RMB stablecoins should proceed cautiously, ensuring they do not undermine mainland China's financial stability. Fourth, a comprehensive analysis of the approval decision: pros and cons and regulatory innovation. The pros and cons of full approval. Approving all 77 institutions' applications would send a positive signal that Hong Kong embraces financial innovation, attract more institutions to establish a presence in the city, and boost market vitality in the short term. However, this would put enormous pressure on regulatory resources, potentially leading to inadequate oversight and increasing financial risks. The issuance of homogeneous stablecoins by multiple institutions could lead to market fragmentation and reduce economies of scale. The pros and cons of selective approval. Selectively approving a small number of institutions (e.g., 10-15) can ensure regulatory quality, reduce systemic risk, and focus resources on cultivating strong institutions. However, this could raise questions about fairness, and qualified companies that are not approved could initiate legal action, undermining Hong Kong's reputation for the rule of law. Furthermore, overly stringent screening could stifle market innovation. V. Policy Recommendations: Seizing Historical Opportunities and Making Rational Choices Establishing a Differentiated Regulatory Framework Implement categorized management for stablecoin issuers of different natures and formulate differentiated regulatory requirements. Implement stricter regulation for systemically important stablecoins, and appropriately relax conditions for stablecoins within a limited scope. Prioritize the development of the US Dollar Stablecoin (USHK). Focus resources on developing USHK and build it into Hong Kong's core competitiveness. Leverage Hong Kong's rule of law, financial infrastructure, and international status to make USHK a safer and more transparent US Dollar stablecoin alternative to USDT. Strictly control the issuance of the Hong Kong Dollar Stablecoin. Maintain a cautious approach to the issuance of the Hong Kong Dollar Stablecoin, limiting it to only three issuing banks to ensure consistency with the linked exchange rate system and avoid arbitrage and financial risks.

Prudently promote the development of RMB stablecoins.

The development of RMB stablecoins should be strictly limited to the offshore market, with a controlled scale to avoid impacting mainland financial stability. Pilot projects can be conducted initially, and then gradually expanded after accumulating experience.

Introduce a regulatory sandbox mechanism.

To balance innovation and risk, a regulatory sandbox mechanism should be introduced, allowing companies to test new stablecoins and related technologies in a restricted environment, providing a practical basis for improving the regulatory framework.

Strengthen the application of regulatory technology.

Increase investment, enhance the level of regulatory technology, and utilize technologies such as blockchain, big data, and artificial intelligence to achieve real-time monitoring and risk assessment, thereby improving regulatory efficiency and accuracy.

Unleash entrepreneurial spirit.

Reserve room for innovation within the regulatory framework, encourage professionals with entrepreneurial spirit to participate in policy formulation and implementation, and avoid the overly conservative mindset of professional managers that hinders financial innovation. VI. Conclusion: Hong Kong's Historical Choice The 77 applications for stablecoin licenses present both a challenge and an opportunity. The key decision facing Hong Kong is not a simple "approval or rejection" decision, but rather how to maximize the benefits of stablecoin development while minimizing potential risks through differentiated regulation and institutional innovation. The US dollar stablecoin (USHK) represents a significant historical opportunity for Hong Kong. As a US dollar-pegged currency, the Hong Kong dollar will be immune to the rise of US dollar stablecoins and could benefit from successful implementation. Leveraging its sovereign credibility and financial foundation, Hong Kong could attract other small economies to adopt the USHK. This presents a significant historical opportunity for Hong Kong. Competition in stablecoins is essentially a competition between nations. Hong Kong needs to unleash its entrepreneurial spirit and balance risk management with innovative vitality. Hong Kong's regulators should demonstrate historic responsibility, maintaining rigorous oversight while also being innovative and inclusive, and seizing the historic opportunity for stablecoin development. Hong Kong has the conditions to become a global leader in stablecoin development, but this requires wise decision-making, innovative oversight, and a responsible entrepreneurial spirit. The approval decisions for the 77 applications will be a litmus test of Hong Kong's credentials as an international financial center and a crucial factor in determining whether Hong Kong can maintain its competitiveness in the digital economy.