Hong Kong's Stablecoin Ordinance Aims to Balance Innovation and Risk

On June 24, Johnny Ng, a legislative member in China Hong Kong, expressed strong support for the newly passed Stablecoin Ordinance, describing it as a significant step forward in the region’s digital finance goals. The ordinance clearly defines stablecoins as payment tools rather than investment assets, a move that Ng believes demonstrates China Hong Kong's maturity in handling cryptocurrencies. Starting August 1, the Hong Kong Monetary Authority (HKMA) will begin accepting applications from potential issuers, focusing on setting strong guardrails, enforcing strict licensing rules, and prioritizing practical uses. Ng emphasized that this approach strikes the right balance between encouraging fintech innovation and managing potential risks. He also advocated for international cooperation, citing the MiCA framework in Europe as an example.

The Stablecoin Ordinance introduces a structured framework for digital tokens tied to fiat currencies in China Hong Kong. Passed in May and set to roll out on August 1, the law establishes a licensing system for issuers. According to the HKMA, stablecoins are intended to function as tools for payments, not for speculation. The clear rules aim to help the public better understand their true role, supporting innovation while maintaining financial safety. The new stablecoin bill highlights real-world usage and long-term stability, aligning with the Financial Stability Board’s 2023 framework.

Ng called the law a key advancement for fintech in China Hong Kong, emphasizing that classifying stablecoins as payment tools draws a clear line between utility and speculation. He highlighted the importance of the HKMA’s “sandbox” approach, which provides a testing ground for issuers to engage with regulators early. However, Ng noted that sandbox participation does not guarantee licensing. He commended the HKMA’s firm stance on transparency and rigor, stressing the need for balanced messaging to avoid market overheating and potential risks. “A balance must be maintained between promotion and risk warnings to ensure the industry’s steady development,” Ng said.

The Hong Kong stablecoin licensing regime demands robust compliance and business viability. Issuers must demonstrate real use cases and possess strong risk controls, including reserve management and anti-money laundering capabilities. Applicants must also show the ability to operate sustainably through different market cycles. The HKMA expects only a few licenses to be granted initially due to the high bar set. Institutions must prove they can solve real problems in finance using stablecoins, and cross-border operations require proof of compliance across jurisdictions. The HKMA’s regulatory clarity aims to prevent misuse and ensure long-term trust in the system.

As the financial world moves toward regulated digital assets, China Hong Kong seeks a leadership role. Ng urged the government to draw insights from the MiCA framework for better cross-border coordination. The HKMA already contributes to international discussions on stablecoin supervision and is leading a global review of the FSB framework’s implementation. The Ordinance strengthens China Hong Kong’s position as a fintech hub while promoting responsible innovation. Authorities focused on financial stability, not just hype. Stablecoins act as a bridge between traditional finance and blockchain, aiding in regulatory challenges. Ng concluded that “Overall, this move lays a foundation for China Hong Kong to solidify its position as a fintech hub.” Only with trust, clarity, and practical solutions can China Hong Kong stablecoin issuers gain wide acceptance and support the region’s global ambitions.