77 stablecoin license applications: How does Hong Kong make its choices?

Authors: Zhu Weisha, Zhang Feng

I. Introduction: A New Regulatory Landscape of Opportunities and Challenges

The Hong Kong Monetary Authority announced recently that as of August 31, 2025, a total of 77 institutions have expressed their intention to apply for a stablecoin license, covering various entities including banks, technology companies, securities firms, and payment institutions. This data not only reflects the market's high attention to Hong Kong's stablecoin regulatory framework but also foreshadows the regulatory challenges and practical choices that lie ahead.

Faced with such a large number of applications, the Hong Kong SAR government and financial regulatory authorities have fallen into a sweet dilemma. If all are approved, regulatory resources will be under immense pressure; if only a few are approved while the unapproved companies also meet the legal criteria, it may impact Hong Kong's reputation for the rule of law. Behind this approval dilemma lies a deeper question: how should Hong Kong seize the historical opportunity of stablecoin development while avoiding potential financial risks?

II. The Essence of Stablecoin Competition: The Call of Inter-National Competition and Entrepreneurial Spirit

The competition among stablecoins appears to be a technological race among enterprises, but in essence, it is a contest of financial strength and institutional advantages among countries. The fiat currency system can be divided into three categories: base currencies (such as the US dollar and the euro), pegged currencies (such as the Hong Kong dollar), and sovereign currencies (such as the Japanese yen and the Chinese yuan). The rise of the US dollar stablecoin poses a challenge to all sovereign currencies, and many weaker sovereign currencies may gradually exit the international market.

In this global competition, entrepreneurial spirit plays a crucial role. Historically, financial innovation has often been driven by entrepreneurs. In 1694, Scottish entrepreneur William Paterson founded the Bank of England to address the financial crisis of the British government, laying the groundwork for the modern monetary system. In 1983, the entrepreneurial Financial Secretary, John Penrose, led the implementation of the linked exchange rate system, saving Hong Kong from its currency crisis and establishing its status as an international financial center.

Today, Hong Kong is at a critical juncture in the development of stablecoins, needing to balance risk management and innovative vitality, which cannot be separated from entrepreneurial spirit. Professional managers are skilled in executing systems, but often act with caution when facing significant decisions. Hong Kong needs to combine professional regulation with entrepreneurial innovation to seize the historical opportunity for the development of stablecoins.

Three, Analysis of the Advantages and Disadvantages of Three Types of Stablecoin Issuance

( Hong Kong Dollar Stablecoin: Realistic Constraints and Institutional Reconstruction

The Hong Kong dollar stablecoin faces significant real-world constraints. The Hong Kong dollar adopts a linked exchange rate system, pegged to the US dollar, with fluctuations controlled within 1%, requiring market adjustments by the Monetary Authority. If multiple companies are allowed to issue Hong Kong dollar stablecoins, speculators may exploit the price differences among the US dollar, Hong Kong dollar, and stablecoins for arbitrage, leading to uncontrollable risks.

Therefore, the issuance of the Hong Kong dollar stablecoin should be restructured based on the existing monetary system. The best solution is for the Monetary Authority to rely on the linked exchange rate system and designate three note-issuing banks (HSBC, Standard Chartered, Bank of China Hong Kong) to issue the Hong Kong dollar stablecoin. This move can maximize the use of the existing system while bringing the credit and stability of the stablecoin under the management of the Monetary Authority.

(2) US Dollar Stablecoin (USHK): A Significant Opportunity for Hong Kong

The US Dollar stablecoin (USHK) provides significant development opportunities for Hong Kong. The stability of the US Dollar itself is managed by the Federal Reserve, while the Monetary Authority only needs to ensure the peg between USHK and the US Dollar. The issuance mechanism can be compared to that of the Hong Kong Dollar stablecoin, but the issuing entities can be expanded to multiple qualified institutions, rather than being limited to just three banks.

The advantages of USHK are obvious.

Innovative Revenue Mechanism: The Monetary Authority can allocate a portion of the interest from the U.S. Treasury bonds it holds to the issuing institutions, which is significantly more attractive compared to Tether (which does not pay interest) and institutions restricted by the U.S. "Genius Act".

Credit Transparency: The Monetary Authority has a 42-year reputation built up, with mature and transparent auditing and operational processes, far surpassing private institutions like Tether.

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

Implementation Path

Prioritize Ethereum as the issuance chain due to its stable consensus mechanism and high transparency.

At the same time, establish a transparent centralized database based on Ethereum to enhance AML/CFT control.

Develop specific implementation rules to ensure compliance with banking-level KYC, AML, and CFT standards.

From a geopolitical perspective, the United States, as a rule-of-law country, is unlikely to intervene in Hong Kong's linked exchange rate system or the issuance of USDT-like products, therefore the launch of USHK has international legitimacy.

(3) Renminbi Stablecoin (CNHK): A cautiously advanced limited choice

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 (around 3 trillion), and should not affect the financial stability of the mainland. If an attempt is made to promote the internationalization of the RMB through this, it will be constrained by the reality of the RMB being non-convertible, and the aforementioned methods are not applicable.

Some believe that a gold-backed issuance of the RMB stablecoin could be introduced, but this idea is outdated and shortsighted, lacking an understanding of cryptocurrencies born in the internet age. The development of the RMB stablecoin should be cautiously advanced, with the premise of not undermining financial stability in the mainland.

4. Comprehensive Analysis of Approval Decisions: Weighing Benefits and Drawbacks and Regulatory Innovation

The pros and cons of full approval. If the applications of all 77 institutions are fully approved, it will send a positive signal of Hong Kong embracing financial innovation, attracting more institutions to settle in Hong Kong and enhancing market vitality in the short term. However, regulatory resources will face immense pressure, which may lead to inadequate regulation and increase financial risks. The issuance of homogeneous stablecoins by multiple institutions may result in market fragmentation, reducing economies of scale.

Pros and cons of selective approval. Selective approval of a few institutions (such as 10-15) can ensure regulatory quality, reduce systemic risks, and facilitate the concentration of resources to nurture strong institutions. However, this may raise fairness concerns, as unapproved but qualified companies may file legal lawsuits, damaging Hong Kong's rule of law reputation. Furthermore, overly stringent selection may stifle market innovation vitality.

V. Policy Recommendations: A Rational Choice to Seize Historical Opportunities

Establish a differentiated regulatory framework. Implement classified management for issuers of stablecoins based on their different natures, and formulate differentiated regulatory requirements. Apply stricter regulations to systemically important stablecoins while appropriately relaxing conditions for stablecoins within a limited scope.

Prioritize the development of the US dollar stablecoin (USHK). Concentrate resources to develop USHK and make it a core competitiveness of Hong Kong. Utilize Hong Kong's advantages in the rule of law, financial infrastructure, and international status to make USHK a safer and more transparent dollar stablecoin option than USDT.

Strictly control the issuance of HKD stablecoins. Maintain a cautious attitude towards the issuance of HKD stablecoins, limited to three issuing banks, ensuring consistency with the currency peg system to avoid arbitrage behavior and financial risks.

Proceed cautiously with the development of the Renminbi stablecoin. The development of the Renminbi stablecoin should be strictly limited to offshore markets, with a controllable scale to avoid impacting the financial stability of the mainland. Pilot projects can be initiated first, and after accumulating experience, it can be gradually expanded.

Introduce a regulatory sandbox mechanism. To balance innovation and risk, introduce a regulatory sandbox mechanism that allows companies to test new stablecoins and related technologies in a controlled environment, providing practical evidence for the improvement of the regulatory framework.

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

Embrace entrepreneurial spirit. Reserve space for innovation within the regulatory framework, encourage professionals with an entrepreneurial spirit to participate in policy-making and implementation, and avoid overly conservative thinking from professional managers that hinders financial innovation.

6. Conclusion: Hong Kong's Historical Choices

77 applications for stablecoin licenses represent both challenges and opportunities. The key choice facing Hong Kong is not simply whether to approve or disapprove, but how to maximize the benefits of stablecoin development through differentiated regulation and institutional innovation, while minimizing potential risks.

The USHK stablecoin represents a significant historical opportunity for Hong Kong. The Hong Kong dollar, as a dollar-pegged currency, will not be impacted by the rise of dollar stablecoins and could benefit if managed well. Hong Kong is expected to attract other small-scale economies to adopt USHK, leveraging its sovereign credibility and financial infrastructure, which is a significant historical opportunity for Hong Kong.

The essence of stablecoin competition is the competition between countries. Hong Kong needs to demonstrate entrepreneurial spirit, balancing risk control with innovative vitality. Hong Kong's regulators should show historical responsibility, maintaining the rigor of regulation while also being inclusive of innovation, seizing the historical opportunity for the development of stablecoins.

Hong Kong has the potential to become a leader in the global stablecoin development, but this requires wise decision-making, innovative regulations, and entrepreneurial spirit. The approval decisions for 77 applications will serve as a touchstone to test the caliber of Hong Kong as an international financial center and will be a key battle in determining whether Hong Kong can maintain its competitiveness in the era of the digital economy.