Hong Kong is accelerating the construction of a regulatory framework for the Hong Kong dollar stablecoin.

Recently, the relevant bill committee of the Hong Kong Legislative Council is reviewing one of the most anticipated new regulations for 2025

Recently, the relevant bill committee of the Hong Kong Legislative Council has begun reviewing one of the most anticipated new regulations for 2025 - the "Stablecoin Bill." The head of the Monetary Authority (Digital Finance) is hoping that the Legislative Council will pass the bill this year. Afterwards, the Monetary Authority will issue regulatory guidelines explaining how the law will be interpreted, including details on the regulation of issuers' business operations, and will timely implement a system to open up license applications for interested participants.

Hong Kong is accelerating the construction of a regulatory framework for the Hong Kong dollar stablecoin. On February 26, the Financial Secretary of Hong Kong, Chen Maobo, also stated that the Hong Kong SAR government is about to publish its second policy declaration on the development of virtual assets, exploring how to combine the advantages of traditional financial services with technological innovations in the virtual asset field. In addition, the Hong Kong SAR government has submitted a bill to the Legislative Council regarding the introduction of a regulatory system for fiat stablecoin issuers. Once the bill is passed, the Monetary Authority will expedite the approval of license applications.

Stablecoin "Sandbox" Participants Accelerate Issuance Plans

On December 6, 2024, the Hong Kong SAR government released the "Stablecoin Bill" and submitted it for a first reading in the Legislative Council on December 18 (the bill must go through three readings before being signed into law).

It is reported that the "Stablecoin Bill" aims to prevent potential risks posed by designated stablecoins to monetary policy, financial stability, and investor protection, in order to promote further improvement of Hong Kong's regulatory framework in the virtual asset field and align with global trends in virtual asset development and regulation. This system is built on many other key systems, including the licensing system for virtual asset trading platforms that took effect on June 1, 2023.

On July 18, 2024, the Hong Kong Monetary Authority announced the list of stablecoin issuer "sandbox" participants, which includes three participants: JD Coin Chain Technology (Hong Kong) Co., Ltd.; Yuan Coin Innovation Technology Co., Ltd.; Standard Chartered Bank (Hong Kong) Limited, Animoca Group Limited, and Hong Kong Telecommunications Limited (the latter three are a single participant).

Image source: Hong Kong Monetary Authority official website

Currently, the stablecoin businesses of the three participating entities are progressing. JD Coin Chain Technology announced last year that it will jointly launch the JD Stablecoin (JINGDONG Stablecoin) with Star Bank, which is pegged to the Hong Kong dollar (HKD) at a 1:1 ratio.

Yuan Coin Innovation Technology is fully promoting the issuance progress of the HKDR stablecoin, with plans to issue the stablecoin based on Ethereum in the future and to officially launch it on the licensed virtual asset trading platform HashKey Exchange.

Recently, Standard Chartered Bank (Hong Kong) Limited "SCBHK," Animoca Brands, and Hong Kong Telecommunications have signed an agreement to jointly establish a joint venture, planning to apply for a license under the new regulatory framework of the Hong Kong Monetary Authority to issue a Hong Kong dollar-backed stablecoin.

It is important to emphasize that participating in the sandbox is not a necessary path to apply for a stablecoin license; sandbox participants still need to submit formal applications.

International Voices on Hong Kong Dollar Stablecoin and Related Legislation

Recently, the International Monetary Fund (IMF), during its Article IV consultations with the Hong Kong region, commented: "Hong Kong's recent efforts to strengthen the regulation of rapidly developing crypto asset intermediaries are commendable and should be part of a comprehensive regulatory strategy that includes a risk-based approach to stablecoin issuers, close inter-agency monitoring, and ongoing regulatory efforts to ensure that financial institutions manage risks appropriately."

S&P Global Ratings, a U.S. financial analysis firm, stated in a recent stablecoin report that the rapid growth of stablecoins has attracted the attention of regulators. Jurisdictions such as the EU, Hong Kong, and Singapore are taking comprehensive measures in their regions, while the U.S. is lagging behind other major markets in advancing cryptocurrency regulation. Among them, Hong Kong's stablecoin regulation impresses with its sound governance structure and risk management framework. The "Stablecoin Bill," launched in December last year, is expected to pass early this year. Stablecoins that aim to maintain stable value by referencing a single or a basket of fiat currencies fall within the scope of this bill. Regulated activities include issuing stablecoins in Hong Kong and issuing stablecoins referencing the Hong Kong dollar outside of Hong Kong.

Elliptic, a UK blockchain analytics company, commented on Hong Kong's upcoming "Stablecoin Bill": The progress made by Hong Kong in promoting (stablecoin) legislation further strengthens the view that Hong Kong is at the forefront of the Asia-Pacific region in formulating comprehensive regulatory approaches that allow cryptocurrency and blockchain innovators to launch products locally under strong regulatory controls.