Author: Xie Zhaoqing, Source: Tencent News "Qianwang" Hong Kong, already buzzing with activity as its capital market regains global dominance, has been fueled by stablecoins. With the Hong Kong Stablecoin Ordinance set to take effect on August 1st, numerous institutions and individuals are eager to dive into this industry. Whether companies involved in cross-border trade, traditional Hong Kong brokerages and funds, or even ordinary financial professionals—those with the opportunity to enter the stablecoin market all told Tencent News "Qianwang" that they don't want to miss out. Amidst the hustle and bustle, Tencent News "Qianwang" learned that over 50 companies and institutions have flocked to the Hong Kong Monetary Authority, the city's stablecoin regulator. Most of these companies are involved in cross-border trade, including a state-owned energy giant and CITIC Group. They hurried south to meet with the Hong Kong Monetary Authority's regulatory team to discuss the possibility of applying for a stablecoin license. Tencent News' "Qianwang" was unable to obtain comment from CITIC Group as of press time. However, this influx of investors has put Hong Kong regulators in a dilemma: on the one hand, they welcome the overwhelming support for the development of stablecoins in Hong Kong, but on the other hand, they face pressure from international financial organizations, which worry that stablecoin businesses in Hong Kong may become uncontrolled in areas such as anti-money laundering. On the afternoon of July 29th, the Hong Kong Monetary Authority announced the "Guidelines for the Supervision of Licensed Stablecoin Issuers" and the "Guidelines on Combating Money Laundering and Terrorist Financing (Applicable to Licensed Stablecoin Issuers)" aimed at strengthening oversight of stablecoin license applications. At a communication meeting following the release of the guidelines, Hong Kong Monetary Authority Deputy Chief Executive William Chan repeatedly emphasized that despite the current market enthusiasm for stablecoins, he urged market participants to exercise caution, emphasizing that stability is the key to industry development. 1. Central SOEs Flock to Southbound Applications for Stablecoin Licenses Stablecoins are value-anchored digital currencies that maintain a relatively stable value by being linked to a specific asset (such as a fiat currency, commodity, or basket of assets). Currently, the main types of stablecoins on the market include fiat-collateralized stablecoins, algorithmic stablecoins, and cryptocurrency-collateralized stablecoins. The stablecoin announced by the Hong Kong government is pegged to fiat currency, meaning it is collateralized 1:1 with fiat currency at par. However, the Hong Kong government does not restrict the type of fiat currency it is pegged to, including the offshore renminbi. By being pegged to a fiat currency, stablecoins provide a relatively stable form of cryptocurrency, reducing the volatility of traditional cryptocurrencies. Because blockchain-based stablecoins offer relative convenience, efficiency, and low cost in payments and transactions, they hold promising prospects, particularly in cross-border payments. The institutions flocking to Hong Kong to explore stablecoin opportunities are primarily interested in the potential for Hong Kong stablecoins to be pegged to the offshore RMB. These include a state-owned energy giant, CITIC Group, and other companies involved in extensive cross-border trade. While Chen Weimin revealed that most institutions currently in discussions prefer more liquid currencies like the Hong Kong dollar or US dollar, Tencent News' "Qianwang" report indicates that some prospective license applicants ultimately aim for stablecoins pegged to the offshore RMB. However, according to Hong Kong Monetary Authority CEO Eddie Yue, "many remain at the conceptual stage," describing the influx of institutions in a July 23rd blog post. Tencent News' "Qianwang" report has learned that, based on the examples from the Hong Kong Monetary Authority's (HKMA) stablecoin "sandbox," prospective stablecoin issuers must not only be familiar with potential stablecoin applications but also possess strong technical capabilities, particularly experience or viable anti-money laundering solutions—the latter being a key priority for the HKMA. On the afternoon of July 29th, Chen Jinghong, the HKMA's Assistant Director for Anti-Money Laundering, revealed that international organizations, including the Bank for International Settlements and the Financial Action Task Force, have emphasized the importance of preventing money laundering risks associated with stablecoins. Eddie Yue specifically emphasized, "A greater concern lies in preventing stablecoins from being used as a tool for money laundering, particularly in cross-border scenarios." Tencent News' "Qianwang" report has learned that the three companies in the stablecoin "sandbox," including JD CoinChain, Yuanbi, and Standard Chartered Bank, are refining their anti-money laundering plans.
Tencent News’ “Qianwang” learned that this was because some institutions came to the south to contact the Hong Kong Monetary Authority, which attracted the attention of international financial organizations. The latter also issued an anti-money laundering “risk warning” to Hong Kong regulators, especially in cross-border trade payments involving special regions or countries, such as Russia. The cross-border business of these institutions may involve certain special regions, and payments and settlements are made in offshore RMB.
As a new type of payment and settlement tool, stablecoins use blockchain technology to achieve the integration of information flow and funds. In addition to shortening the time and reducing costs of cross-border payments, the most important thing about this method is that stablecoin payments no longer go through the existing international payment and settlement system Swift. This is because, although stablecoins are pegged to fiat currencies (fiat currencies are issued by central banks or designated banks), the process before the stablecoin is issued remains centralized and directly linked to the existing banking system. Fiat currency is transferred through bank accounts to the stablecoin issuer's custodial account at the bank. However, after the stablecoin is issued, all links leave the existing bank account system. In other words, stablecoins enter peer-to-peer payments and transactions—unrelated to the existing banking system. This means that in addition to considering anti-money laundering issues, there is also the possibility that regions or institutions sanctioned by international financial organizations have circumvented these sanctions through stablecoin payments and settlements. It is not ruled out that they will also use Hong Kong's stablecoin pool. How should anti-money laundering risks in the stablecoin industry be managed? Chen Jinghong told Tencent News' Qianwang that there's no specific plan yet, but stablecoin issuers need to convince the HKMA of their anti-money laundering capabilities. This includes, but is not limited to, requiring issuers to conduct "KYC" (Know Your Customer) procedures for their own clients and those who may use their stablecoins, which refers to taking steps to verify the identity, background, and transaction purposes of clients when establishing business relationships or conducting transactions with them to ensure compliance) or implementing technical preventative measures. Chen Jinghong added that KYC can be conducted by issuers themselves or through third-party institutions, or even by the issuer's ecosystem, which can control its own data. Some industry insiders revealed that if they want to exclude certain trading regions or institutions (such as sanctioned countries or institutions) from the blockchain, this is not completely unsolvable. For example, by modifying the underlying contract technology, certain regions or institutions can be prevented from using stablecoins for payments. The Hong Kong Monetary Authority (HKMA) has yet to provide a clear plan for regulating certain regions or institutions attempting to use Hong Kong's stablecoins for cross-border trade payments and settlements to circumvent international sanctions. This is precisely the pressure Hong Kong regulators are currently facing from some international financial organizations. Chen Jinghong explained to Tencent News' Qianwang that this requires issuers to conduct account audits on customer wallets when subscribing to or redeeming stablecoins, including reviewing the account's past transaction records and the account's controlling shareholder. However, Chen Jinghong did not directly address the specific duration and transaction scope of these audits. An industry insider stated that as an international financial center, Hong Kong has a strong regulatory framework and a strong international reputation. He believes that stablecoins are the cornerstone of Hong Kong's financial sector and should not be affected by them. However, the question is how Hong Kong regulators should intervene to prevent transactions, including those unacceptable to international financial organizations, from occurring in the stablecoin industry. This is the most important and urgent task facing Hong Kong regulators. Against this backdrop, concerns about potential risks led the Hong Kong Monetary Authority to expedite the release of regulatory and anti-money laundering guidance in the Stablecoin Ordinance on July 29th. In light of shared international regulatory concerns, the Hong Kong Monetary Authority will establish stricter anti-money laundering requirements to minimize the risk of stablecoins becoming money laundering tools and ensure the orderly and healthy development of Hong Kong's stablecoin market. Second, Offshore RMB Stablecoins Open Up Potential for Growth. "If Hong Kong's stablecoin business is to achieve scale, it will still rely on stablecoins pegged to offshore RMB, not Hong Kong dollar stablecoins," several frontline practitioners involved in the stablecoin business in Hong Kong told Tencent News' Qianwang. They believe that there is little point in Hong Kong developing a US dollar stablecoin, given the already significant volume of dollar-pegged stablecoins in the market. Hong Kong's existing regulatory regulations do not specify the type of currency to which Hong Kong's stablecoins should be pegged. Chen Weimin stated that the HKMA does not have specific requirements regarding the choice of currency or scale for issuers. Public data shows that by the end of May 2025, the market capitalization of the current US dollar-pegged stablecoins, USDT and USDC, will be approximately $250 billion. USDT (issued by Tether) holds the largest market capitalization, exceeding $150 billion, while USDC (issued by Circle) exceeds $68 billion. The aforementioned industry insider revealed that while there is demand for Hong Kong dollar stablecoins, their scale is ultimately too small to be used in many scenarios. They are likely to be used more for Hong Kong dollar-denominated transactions in Hong Kong, such as certain financial products. In contrast, stablecoins have more application scenarios in cross-border trade, most of which are denominated in RMB. Many cross-border trading institutions already use dollar-pegged stablecoins for payment and settlement—a scenario they believe has the greatest potential for offshore RMB stablecoins. Tencent News' "Qianwang" report has learned that the Hong Kong Monetary Authority's three current stablecoin sandbox companies, including JD CoinChain, Standard Chartered, and Yuanbi, have all listed cross-border stablecoin payments as one of their use cases. Another mature application scenario in the stablecoin industry is the Real World Assets (RWA) business, which is also one of the use cases for some stablecoin sandbox companies applying for stablecoin licenses in Hong Kong. RWA refers to the tokenization of real-world assets, particularly those that generate stable income, such as hotel rentals, photovoltaic power generation, and even stocks, bonds, and commodities, through blockchain technology, enabling on-chain trading, management, and circulation. Simply put, RWA digitizes real-world assets and uses blockchain technology to trade and manage them. This business effectively facilitates financing for traditional assets. Currently, stablecoins have become a necessity for some cross-border trade users, and their application in cross-border trade is expected to expand on a larger scale. However, certain institutions or regions using offshore RMB settlement in cross-border trade do present risks. Some international financial organizations are concerned that Hong Kong's future offshore RMB stablecoins could be used by certain countries or institutions to circumvent SWIFT sanctions. A representative from an institution familiar with the stablecoin business and planning to apply for a license in Hong Kong told Tencent News' Qianwang that a "divestiture solution" could allow the stablecoin pools pegged to offshore RMB to be separated. Specifically, Hong Kong would establish a separate stablecoin pool pegged to offshore RMB, while mainland free trade zones would establish another. In his view, while this may seem a "risky" idea, it's not justified. He cited the example of some institutions, including China National Petroleum Corporation, whose cross-border trade is conducted through channels such as CIPS (Cross-Border RMB Payment System) and Bank of Kunlun. If some offshore RMB were mixed into Hong Kong's offshore RMB stablecoin pool, this would indeed pose some risks.
"The offshore RMB pool is divided into two parts according to a certain structure, namely, one pool of offshore RMB stablecoins in Hong Kong, and the other is the offshore RMB pool of the mainland free trade zone." The above-mentioned person believes that the separated Hong Kong offshore RMB stablecoin pool can meet the requirements of existing international financial organizations. Another technician familiar with the stablecoin business told Tencent News "Qianwang" that this is indeed technically feasible.
Tencent News "Qianwang" learned that in the past period of time, many free trade zones in China have conducted discussions on the implementation direction of stablecoins to explore possible business models. Public information shows that on July 10, the Party Committee of the Shanghai State-owned Assets Supervision and Administration Commission held a central group study meeting to study the development trends and response strategies of cryptocurrencies and stablecoins, including exploring the application of blockchain technology in cross-border trade, supply chain finance, asset digitization and other fields.
In the view of the aforementioned industry insiders, by separating the offshore RMB stablecoins into separate pools, Hong Kong regulators can issue offshore RMB stablecoins without any burden.
Hong Kong Monetary Authority data shows that as of the end of May, RMB deposits in Hong Kong were 975.6 billion yuan, while the total amount of RMB receivables from cross-border trade settlements in May was 1.1236 trillion yuan - both of which have the potential to become the core base for offshore RMB stablecoins.
However, many industry insiders believe that separating the stablecoin pools pegged to the offshore RMB is indeed a good solution, but establishing a new "stablecoin pool" in domestic free trade zones, including Shanghai, will face many challenges.
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