# Understanding Hong Kong Stablecoins Through the History of Hong Kong Currency

Hong Kong’s stablecoins have somewhat resembled a tide receding over the past six months.

In June 2025, the Hong Kong SAR government published the “Stablecoin Ordinance (Effective Date) Notice” in the Gazette, designating August 1, 2025, as the implementation date. On July 29, the Hong Kong Monetary Authority (HKMA) encouraged institutions interested in applying for a license to contact them by August 31. If they felt ready and wished to be considered early, they should submit their applications by September 30.

By the end of September, a total of 36 institutions had submitted formal applications, including tech companies, exchanges, payment providers, and traditional financial institutions—all eager to get on the first train.

Recently, however, the trend has clearly shifted.

The latest leaked news from the media indicates that only three entities have been approved so far, two of which are banks. The previously popular candidates with mainland Chinese backgrounds are not among them. After the release of the Mainland’s “Document No. 42” in February this year, many naturally concluded that the cooling of Hong Kong stablecoins was mainly due to tightened regulations on Chinese financial institutions by mainland authorities.

This judgment has a solid basis. Document No. 42 explicitly states that virtual currencies do not have the same legal status as fiat currency. Without proper approval, no domestic or foreign entity or individual may issue stablecoins pegged to the Renminbi outside China, and foreign entities are also prohibited from providing related services illegally within China. For many organizations that initially hoped to link “Hong Kong stablecoins” with “offshore RMB” or “cross-border scenarios,” this is a clear boundary.

However, interpreting this solely as “the wind has shifted after Document No. 42” overlooks a more important layer. Because even without this document, the current situation of Hong Kong stablecoins is not surprising. It’s not a sudden shift from an open track to a bank-centric game; rather, it’s a winding back to the most familiar framework of Hong Kong’s financial system.

To understand this clearly, the best approach isn’t to start from blockchain but from Hong Kong’s monetary history.

Hong Kong’s banknotes were not issued centrally by the government.

Historically, there were eight note-issuing banks, with the earliest dating back to the mid-19th century—some as early as 1846. The logic was simple: whoever had credit could issue banknotes accepted by the market.

This was not due to technological reasons but because port trade and financial activities at the time required a circulating, redeemable medium of payment. Bank balance sheets for a long period served as the backbone of this credit function.

But financial history repeatedly shows that currency, while seemingly part of commercial activity, is actually a system that can easily trigger systemic consequences. Allowing banks to issue notes could improve market efficiency, but problems quickly arose: if each bank could issue notes and their creditworthiness varied, it would lead to discounts, runs, and chaos.

1935 was a pivotal year in Hong Kong’s monetary history.

Amid fluctuations in silver prices and international policy shifts, Hong Kong abandoned the silver standard in November 1935, like mainland China, and in December, established the Exchange Fund through the Currency Ordinance—later known as the Foreign Exchange Fund.

Its purpose was not to create a modern central bank that controls everything but to institutionalize the issuance of currency and reserve backing.

During World War II, Hong Kong was occupied by Japanese forces. Banks, lacking full backing, were forced to issue banknotes. After the war, dealing with these notes became a challenge: authorities couldn’t simply declare them invalid, nor could they easily distinguish between “legally issued” notes and those printed under duress.

Once banknotes lose their recognizable, payable, and verifiable institutional basis, they cease to be just a financial issue and become a matter of social order.

For ordinary people, currency isn’t an abstract theory but the money in your hand—whether you can buy rice, medicine, or pay rent tomorrow. In this sense, the core of a monetary system is never its form but the stability of trust.

Later, Hong Kong’s monetary system swung multiple times between the sterling and US dollar systems. When the pound devalued in 1967, both the Exchange Fund’s assets and banks’ balance sheets were impacted, requiring ongoing adjustments to maintain public confidence. The move to a linked exchange rate wasn’t a technical preference but a crisis-driven choice.

The definitive shaping of Hong Kong’s current monetary system was the linked exchange rate regime introduced in 1983.

That year, Hong Kong faced a currency and confidence crisis, with the Hong Kong dollar plunging sharply and even a panic buying spree. The HKMA, in its commemoration of the 30th anniversary of the Linked Exchange Rate, vividly recalled: hot summer nights, long queues outside supermarkets, people rushing to buy daily necessities fearing further devaluation, shelves emptied and refilled until late at night when supply trucks arrived.

Subsequently, the Hong Kong dollar was pegged at 7.80 to the US dollar, establishing the linked exchange rate system. Its stability relies on a “currency issuance bureau” style strict constraint: the monetary base must be supported by US dollar assets, and the system maintains stability through a clear, transparent exchange mechanism.

The three note-issuing banks—HSBC, Standard Chartered, and Bank of China Hong Kong—must exchange US dollars with the Exchange Fund at the specified rate when issuing notes; similarly, they can redeem notes for US dollars at the same rate. This “liability certificate” arrangement anchors banknote issuance to US dollar reserves, not the banks’ own credit.

Today’s familiar three note-issuing banks—HSBC, Standard Chartered, and BOC Hong Kong—are products of this gradually converging system. BOC Hong Kong began issuing notes in 1994.

Understanding this history, it’s striking how similar today’s stablecoins are to Hong Kong’s traditional monetary logic.

Almost every keyword in Hong Kong’s stablecoin regulation echoes its monetary history.

First is full reserve. The HKMA explicitly requires that the reserve assets backing each type of stablecoin must at all times be at least equal to the circulating value not yet redeemed. Allowing “appropriate over-collateralization” as a buffer aligns with the “support ratio” concept of the currency issuance bureau.

Second is high liquidity. Reserve assets must be cash, bank deposits within three months, high-quality short-term debt instruments, overnight repos, and other low-risk investments. This conservative asset list isn’t about resisting financial innovation but a direct response to “run scenarios”—when redemption pressure hits, whether assets can be quickly liquidated and avoid price drops determines the survival of the stablecoin.

Third is custody and segregation. Reserve assets must be separated from the issuer’s own assets, ideally held by licensed banks or approved custodians, with legal arrangements like trusts ensuring priority for redemption in case of insolvency. This mirrors the layered structure of “liability certificates—Exchange Fund—note-issuing banks” from the paper money era: key underlying assets are stripped from the issuer’s credit to minimize contagion risk.

Fourth is hard redemption. Regulations require issuers to establish robust redemption mechanisms, generally completing payouts within one business day. If delayed, prior approval from regulators is needed. This is a typical “regulation that embeds a run” approach: assuming the worst and demanding auditable, reliable redemption pathways.

The licensing process itself reflects a “bank-like” prudence. Interested applicants should first express intent to the HKMA for informal discussions, allowing regulators to better understand their background and business model before submitting formal applications. This is why the market often describes Hong Kong stablecoin licensing as “invitation-based”—not explicitly written into law, but the process effectively makes pre-application communication a de facto threshold.

Capital requirements are also noteworthy. Non-licensed entities must maintain at least HKD 25 million in paid-up capital. However, this does not apply to licensed banks, which are already under the higher standards of the Banking Ordinance. The additional requirements for stablecoins are more like supplementary constraints layered on existing banking regulation rather than a complete overhaul.

This is why, ultimately, stablecoins increasingly resemble banking activities.

Banks are inherently designed for this. Their core capability isn’t flashy apps or marketing but liability management: accepting deposits, promising to redeem on demand, and maintaining this promise through a comprehensive system of capital, liquidity, compliance, clearing, and risk controls.

Stablecoins, on the surface, are tokens; in essence, they are promises of redemption at any time. Given their similar nature, the system naturally favors those best equipped to withstand risks.

This explains why the market’s recent speculation about the “first wave” of candidates mostly involves banks.

The authorities previously disclosed that in July 2024, three groups of stablecoin issuers participated in the sandbox: JD Chain, RD InnoTech, and a consortium led by Standard Chartered with Animoca Brands and HKT. The sandbox aims to facilitate regulatory dialogue and business feedback but does not equate to licensing.

By around March 2026, reputable media such as South China Morning Post and Bloomberg reported, citing sources, that HSBC and the consortium led by Standard Chartered are more likely to be among the first approved, with regulators favoring banks already holding the right to issue Hong Kong dollar notes. There’s also speculation about a third candidate from a licensed virtual asset platform, such as OSL. OSL obtained a virtual asset trading platform license from the SFC in December 2020, giving it an early compliance advantage, but its reserve, custody, redemption, and governance standards still differ significantly from “bank-like liabilities.”

However, these are media-based assessments based on multiple sources, not official regulatory announcements. In terms of verifiability: it’s factual that Standard Chartered participated in the sandbox and is one of the three note-issuing banks; the claim that HSBC is “more likely” to be among the first is media speculation; and the idea that OSL might be among the first remains unconfirmed by authoritative sources.

From a systemic perspective, this trajectory isn’t surprising. Hong Kong didn’t suddenly decide “stablecoins are best handled by banks”; rather, its monetary evolution has naturally led to a new payment instrument—“full reserve, hard redemption, strong auditing, and heavy custody”—being integrated into the banking system.

Understanding Hong Kong’s monetary history makes it clear that many aspects of its stablecoin approach are a natural extension: if stablecoins are to become mainstream in Hong Kong, they will likely originate from banks.

In Hong Kong, stablecoins are unlikely to become a fully open internet race; instead, they will be a new form of “bank-like issuance” on a different platform. Since it’s a form of issuance akin to banknotes, it’s not surprising that the closest entities are banks. On the surface, it’s about blockchain, Web3, and digital payments, but at the core, it’s the same old issue.

Mainland China’s Document No. 42 is important, but it mainly clarifies external boundaries—especially sharply narrowing the most imaginative pathways for Chinese institutions, such as linking Hong Kong stablecoins with RMB symbols, cross-border retail services, or scenarios targeting mainland users.

If this judgment holds, the future of stablecoins in Hong Kong may not be a diverse entrepreneurial race but a different kind of division of labor: a highly concentrated issuance layer, with a relatively open application and service layer. Banks handle credit and redemption, while platforms, merchant networks, payment interfaces, audits, custody, on-chain risk management, and clearing will develop new ecosystems on the periphery.

For Web3 entrepreneurs, the real opportunity isn’t just “can I issue a coin” but “can I meet the needs of those institutions that will eventually get licenses”—such as compliance KYC and AML, on-chain monitoring and risk management, reserve disclosure systems, smart contract audits, merchant and wallet distribution networks. These are more likely to be practical, implementable businesses.

Hong Kong’s stablecoin landscape today isn’t because it suddenly became conservative; it’s because it finally looks like Hong Kong. The key factor shaping its future is still its own financial history.

In this sense, the new story of Hong Kong stablecoins isn’t really new.