The launch of Hong Kong’s Stablecoin Ordinance on May 30, 2025, marked a pivotal moment in global financial regulation. Published in the official gazette, this landmark legislation establishes Hong Kong as the world’s first jurisdiction with a comprehensive, end-to-end regulatory framework for fiat-backed stablecoins. With requirements such as a HK$25 million minimum capital threshold, 1:1 fully backed reserve assets, and enforceable redemption rights for users, the ordinance sets a new benchmark for market integrity and investor protection.
This regulatory clarity opens transformative opportunities—particularly for mainland Chinese financial institutions seeking to navigate digital finance innovation while managing compliance risk. As Hong Kong emerges as a testing ground for blockchain-based financial infrastructure, Chinese banks are uniquely positioned to leverage cross-border synergies, technological expertise, and regional integration under frameworks like the Greater Bay Area (GBA) initiative.
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Regulatory Landscape: Contrasting Approaches Between Mainland China and Hong Kong
Hong Kong’s proactive stance on stablecoin regulation stands in contrast to mainland China’s cautious approach, creating a strategic window for innovation.
The Hong Kong Monetary Authority (HKMA) launched its HKD stablecoin regulatory sandbox in March 2024, attracting participants including Standard Chartered Hong Kong and JD Technology. The Stablecoin Ordinance formalizes three core pillars:
- Reserve asset requirements: Must consist of high-quality, liquid assets held in segregated custody.
- Redemption guarantees: Users must be able to redeem stablecoins at face value on demand.
- Compliance obligations: Issuers must adhere to anti-money laundering (AML) protocols, undergo regular audits, and meet strict governance standards.
These measures aim to balance financial innovation with risk management, ensuring stablecoins function as reliable payment instruments rather than speculative assets.
In contrast, the People's Bank of China (PBOC) maintains a restrictive posture toward cryptocurrency trading and initial coin offerings (ICOs), citing concerns over “dual risks” from finance and digital technology. However, it actively supports blockchain applications—most notably through the development of the digital renminbi (e-CNY). This divergence allows mainland banks to explore stablecoin use cases via Hong Kong’s regulated environment without violating domestic policies.
Participation Models: How Chinese Banks Can Enter the Stablecoin Ecosystem
Chinese financial institutions can engage with Hong Kong’s stablecoin market through multiple strategic models:
Joint Venture Issuance
Collaborative ventures allow banks to combine financial credibility with tech agility. A prime example is Standard Chartered Hong Kong partnering with ANI Group and HKT to form a joint entity applying for one of the first stablecoin licenses. This “finance + tech + use case” triad enables seamless integration of banking infrastructure, Web3 development capabilities, and real-world payment scenarios.
Mainland banks can replicate this model through their offshore subsidiaries or affiliated fintech arms, minimizing regulatory exposure while gaining hands-on experience.
Technology Enablement
Mainland fintech expertise offers scalable solutions for compliance and operations. For instance:
- JD Technology leveraged its e-commerce payment architecture to develop a HKD-pegged stablecoin within the HKMA sandbox.
- Jincai Interconnection’s tax data platform has been designated as a mandatory compliance tool for licensed issuers, automating on-chain transaction reporting across jurisdictions.
Banks with advanced fintech stacks can export these systems—such as automated AML screening tools that detect mixer usage or cross-chain analytics engines interfacing with China’s Golden Tax System Phase IV.
Financial Infrastructure Services
Even without direct issuance, banks can provide essential backend services:
- Fiat on/off-ramps: Institutions like ZA Bank (ZhongAn Bank) already support HKD-to-crypto trading, offering a blueprint for traditional banks to integrate via subsidiaries.
- Custody and settlement: Leveraging existing secure asset management frameworks, banks can serve as custodians for reserve assets or facilitate interbank clearing via blockchain-integrated systems.
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Strategic Roles in the Stablecoin Value Chain
Stablecoins redefine traditional banking functions across three key domains:
Issuance as Digital Liability Management
Issuing stablecoins extends deposit-taking into programmable money. JPMorgan’s JPM Coin, now powering the Kinexys payment network with over $20 billion in daily volume, demonstrates how banks can monetize low-cost liabilities. By investing reserve funds in low-risk instruments like government bonds, issuers can achieve profit margins between 15% and 30%, according to internal JPMorgan reports.
Asset Custody and Risk Mitigation
Trust is central to decentralized finance (DeFi). Banks offer institutional-grade custody solutions that mitigate counterparty risk. The collaboration between Standard Chartered and OKX on a “collateral mirroring project”—where the bank safeguards crypto collateral while OKX handles execution—exemplifies how traditional and digital finance can coexist securely.
Payment and Settlement Innovation
With Visa reporting global stablecoin payments reaching **$6.7 trillion in 2025** at near-zero transaction costs (~$0.00025 per transaction), banks face pressure to modernize. Integrating Hong Kong’s stablecoin rails with mainland systems like CIPS (Cross-border Interbank Payment System) could enable sub-second cross-border settlements—a game-changer for trade finance and remittances.
Pathways Forward: Four Strategic Approaches for Chinese Banks
To capitalize on this shift, Chinese banks should consider:
1. Licensing and Equity Partnerships
Establishing a Hong Kong-based subsidiary to apply for a stablecoin license ensures full regulatory compliance. Alternatively, taking minority stakes in sandbox-tested firms—such as Yuanbi Technology’s HKDR project—reduces initial capital risk while providing access to proven technology.
2. Exporting Fintech Systems
Leverage mature domestic capabilities:
- Automated tax compliance engines
- On-chain AML detection tools
- Cross-chain interoperability protocols
These systems address critical regulatory pain points and position banks as enablers rather than just participants.
3. Launching Offshore RMB Stablecoins
As the world’s largest offshore RMB hub, Hong Kong offers an ideal testbed for offshore yuan-backed stablecoins. Partnering with the HKMA within the sandbox, mainland banks could pilot RMB stablecoins for cross-border trade settlements—accelerating renminbi internationalization.
4. Greater Bay Area Integration
Deploy stablecoins in high-impact GBA use cases:
- Replacing costly letters of credit in cross-border e-commerce
- Enabling smart contract-driven supply chain financing
- Tokenizing assets to link Hong Kong’s virtual asset ETFs with mainland investors
Benefits and Risks: Navigating the Dual Edges of Innovation
Transformative Potential
- Payments: Lower costs and faster settlement times drive investment in blockchain-based systems.
- Lending: Collaboration with DeFi platforms unlocks new credit channels and customer segments.
- Asset Management: Tokenization enhances liquidity and efficiency in securities and alternative investments.
Systemic Risk Considerations
- Deposit Displacement: Up to $6.6 trillion in transactional deposits could migrate to stablecoins, threatening bank funding stability.
- Market Volatility Spillovers: Tight linkages between crypto and stablecoin markets may transmit shocks to traditional finance.
- Systemic Runs: Poorly regulated stablecoins face redemption crises that could cascade through the financial system.
Conclusion: A Catalyst for Financial Evolution
As董一岳 of the Hong Kong Financial Development Council noted: “Without a robust stablecoin framework, there can be no true Web3 hub.” Stablecoins are not disruptors but catalysts—accelerating the evolution of legacy financial infrastructure.
For Chinese banks, Hong Kong’s regulated sandbox offers a safe corridor to experiment with digital currencies. By launching HKD or offshore RMB stablecoins through subsidiaries, testing cross-border payment corridors, and aligning with e-CNY development goals, they can support national strategies of high-quality growth and open finance.
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Frequently Asked Questions (FAQ)
Q: What is the significance of Hong Kong’s Stablecoin Ordinance?
A: It establishes the world’s first comprehensive legal framework for fiat-backed stablecoins, setting global standards for reserves, redemption rights, and issuer accountability.
Q: Can mainland Chinese banks issue stablecoins directly?
A: Not within mainland China due to current crypto restrictions. However, they can participate via Hong Kong subsidiaries or joint ventures under the territory’s regulated environment.
Q: How do stablecoins affect traditional banking revenue?
A: They introduce both opportunities—such as issuing high-margin digital liabilities—and risks, including potential loss of deposit funding to more efficient digital alternatives.
Q: Is the digital yuan (e-CNY) a type of stablecoin?
A: While both are digital and pegged to fiat, e-CNY is a central bank digital currency (CBDC), not a private-sector stablecoin. It operates under direct PBOC control and serves monetary policy objectives.
Q: What role does blockchain play in stablecoin operations?
A: Blockchain enables transparency, immutability, and programmability—critical for auditability of reserves, automated compliance, and real-time settlement across borders.
Q: How might stablecoins impact RMB internationalization?
A: Offshore RMB-backed stablecoins issued in Hong Kong could streamline cross-border trade settlements and investment flows, expanding global renminbi usage in a regulated manner.