Hong Kong proceeds with stablecoin plans despite Beijing’s reservations

Hong Kong’s central bank is pressing ahead with plans to issue an initial batch of stablecoin licenses in March, despite China’s long-standing opposition to cryptocurrency activity. Experts, however, see Hong Kong’s stablecoin plans as more of a hedge than a reversal of Beijing’s position.

“We hope that by March we will be able to make a decision,” Eddie Yue, Chief Executive of the Hong Kong Monetary Authority, told a Legislative Council meeting on Feb. 2, adding that the authority was reviewing an initial tranche of 36 stablecoin issuer applications, according to an official interpreter.

Yue’s update comes after plans to allow for the issuance of stablecoins within Hong Kong were reportedly stalled by Beijing.

Stablecoins are cryptocurrencies designed to maintain relatively stable values by pegging them to assets such as fiat currencies or gold, reducing price volatility compared with other digital tokens.

Hong Kong passed its Stablecoins Ordinance in May, requiring licenses for entities that issue stablecoins within the territory or peg them to the Hong Kong Dollar. The law took effect in August, and the HKMA began accepting applications soon after.

Jordan Wain, policy advisory lead from Chainalysis, said that stablecoins now account for more than half of the value of transactions recorded directly on blockchains, making them “central to the crypto ecosystem.”

In a memo, the HKMA cited cross-border payments or tokenized deposit systems for international banks as potential use cases for stablecoins within the territory. Tokenized deposit systems refer to digital representations of customer deposits on blockchain networks, regulated within the traditional banking system.

Prospective issuers such as payments technology firm Payment Cards Group claim that Hong Kong dollar-backed stablecoins would enable “faster refunds, quicker cross-border payments, and more transparent foreign exchange rates.”

According to Wain, a growing number of regulators and financial institutions are exploring growth opportunities in stablecoins, pointing to Japan and Europe, which already have established regulatory frameworks for adoption.

Interest in Hong Kong’s licensing regime reportedly included tech giants like the Alibaba-backed Ant Group and Chinese e-commerce firm JD.com.

However, in October, Chinese regulators, including the People’s Bank of China, advised against the plan, effectively halting all progress, according to a Financial Times report, citing sources familiar with the matter.

Although Hong Kong formally maintains a degree of autonomy from Beijing under the “one country, two systems” principle, Beijing retains significant influence over major policy decisions.

Unlike Hong Kong, however, Beijing has taken a conservative stance on crypto. Although China was once at the forefront of crypto trading and mining activity, regulators began tightening controls in 2013.

Those restrictions culminated in a complete ban on crypto transactions in 2021, citing concerns over volatility and illicit activity.

A recent report found that stablecoins were the primary tool used by Chinese organized crime to move illicit funds, with as much as $44 million transferred daily through sophisticated networks.

Beyond crime risks, Beijing’s concerns center on monetary control, said Monique Taylor, an academic from the University of Helsinki.

According to Taylor, Beijing is most likely concerned about the prospect of renminbi-linked financial instruments circulating beyond its borders and out of regulatory reach.

“Stablecoins challenge [Beijing’s] state control over money, payments and capital flows, and therefore sit uneasily with China’s state-centered model of monetary governance, which prioritizes oversight and domestic financial stability,” Taylor told CNBC.

Beijing’s concerns also extend to the “dollarization of the digital asset economy,” with fiat-backed stablecoins such as the USDT and USDC pegged to the U.S. dollar.

“China’s monetary establishment has recognized that dollar-backed stablecoins risk reinforcing [the] U.S. dollar’s dominance,” according to Taylor.

Similar sensitivities have emerged in Washington. U.S. Treasury Secretary Scott Bessent told a Senate Banking Committee on Thursday that he “would not be surprised” if Hong Kong’s push into digital assets was seen as an attempt to build an “alternative to American financial leadership”.

Taylor said Hong Kong’s planned licensing regime appears designed as a limited experiment — allowing Beijing to keep its options open — rather than a direct countermeasure to the U.S. influence in crypto.

“There is little evidence that China is moving to reverse its ban on cryptocurrencies,” Taylor said, describing Hong Kong’s approach as a “limited and cautious rollout,” indicating Beijing’s continued skepticism.

China reinforced that stance on Friday, when eight state regulators issued a joint statement reaffirming China’s ban on crypto activity, including the unauthorized issuance of yuan-backed stablecoins.

Wain said Hong Kong’s initial licenses are also about the city “using its autonomy to prove that stablecoins can be properly supervised while still playing a central role in payments, tokenization, and the city’s broader Web3 ambitions.”

This regulatory clarity would likely appeal to overseas investors looking to cash in on Hong Kong’s eventual stablecoin plans, Taylor said, while noting that Hong Kong is unlikely to allow a “liberalized crypto environment” to flourish.