The upcoming stablecoin regulations in Hong Kong may shake the dominance of the US dollar, causing major issuance institutions to hesitate.

Written by: Callan Quinn, Decrypt

Compiled by: Jessica, Techub News

As new stablecoin regulations come into effect in August, Hong Kong is aligning its fintech development with China's push for a "de-dollarization" strategy.

Key Points Overview

The new regulations will take effect in August, requiring fiat-backed stablecoin issuers operating in Hong Kong to be licensed.

Financial Secretary Paul Chan will link stablecoins with "de-dollarization" and local currency regional trade.

Analysis indicates that high capital and reserve requirements may deter global issuing institutions such as Circle (USDC) and Tether(USDT).

Hong Kong reiterates its support for stablecoins and will implement a new regulatory framework for fiat-backed stablecoins in August. Some believe that this move may curb the ambitions of large institutions and challenge the dominance of the US dollar in the Asian region.

Last Saturday (June 28, 2025), Hong Kong's Financial Secretary Paul Chan linked the development of stablecoins to the growing demand for "local currency trade settlement" in the Global South and parts of Asia, rather than relying on the US dollar.

In an official blog post after attending the Tianjin and Beijing World Economic Forum "Summer Davos," Chan Mo Po wrote: "Stablecoins provide a more cost-effective alternative to the traditional financial system." He then added, "They are expected to bring transformation to payment and capital market activities, including cross-border payments."

These remarks are highly consistent with Beijing's large-scale efforts to promote the internationalization of the renminbi and to "de-dollarize". As the world's largest trading nation since 2017, China's global trade landscape highlights the growing demand for renminbi settlement, while Hong Kong's position as the largest offshore renminbi hub further strengthens this trend.

To consolidate this advantage, Hong Kong will implement new regulations on August 1, establishing a licensing system for the issuance of fiat-backed stablecoin issuers under the regulation of the Hong Kong Monetary Authority. The law requires licensed entities to strictly adhere to regulations regarding reserve asset management, par value redemption, fund segregation, and anti-money laundering controls.

Set high thresholds

Only licensed institutions can issue or promote stablecoins to retail investors. Although the system opens the door for multi-currency issuance by providing a more globalized framework than some jurisdictions, analysts believe the new regulations set extremely high thresholds.

Sean Lee, co-founder of the digital asset technology company IDA, which focuses on developing regulated stablecoin infrastructure, told Decrypt: "Its capital requirements are about three times that of Singapore." He described the policy as progressive, but more likely to attract local participants rather than global giants like Circle or Tether.

Lee added that the mandatory requirement to establish reserve and operational entities in Hong Kong makes it highly unlikely for large global companies to issue stablecoins directly. Instead, he expects offshore stablecoins to continue being used in specialized fields through distribution partners.

The application in the retail sector seems limited, especially under Hong Kong's mature local digital payment system. However, there is still potential for cross-border commercial use. "Do not underestimate the dimension of offshore RMB; this is the main reason why the new regulations in Hong Kong have received full support from Beijing," Lee mentioned regarding offshore RMB transactions outside mainland China.

However, although theoretically it can reduce costs, the use of stablecoins may not yet surpass existing options. "When all costs are taken into account, the current end-to-end fees may not necessarily be more favorable than those of established institutions like Wise," Lee pointed out the issue of insufficient liquidity in different currencies.

Jack Zhang, CEO of the fintech startup Airwallex valued at $6.2 billion, expressed a more pessimistic view on social platform X: "I don't see any way for stablecoins to reduce costs - the cost of converting stablecoins into the recipient's currency is much higher than that of the foreign exchange interbank market."

However, Lee remains optimistic: "Given time, the trading costs based on stablecoins (including foreign exchange) will continue to decrease."