Stablecoins – entities referenced to real-world financial instruments such as gold or fiat currencies – are a feature of today's digital assets space. Hong Kong has a new ordinance that takes effect from 1 August.

New Hong Kong rules licensing stablecoins referenced to fiat currencies kick in from 1 August – a move that the Asian city hopes will help boost its financial centre. KPMG has welcomed the development. 

The Legislative Council in Hong Kong passed the Stablecoins Ordinance in May. 

Stablecoins are cryptocurrencies where the value of the digital asset is meant to be pegged to and collateralised by a reference entity, such as gold – or in the case of Hong Kong – a state currency.

“This regulatory clarity arrives as the digital asset sector continues to attract strong investor interest,” Paul McSheaffrey, senior banking partner, Hong Kong, KPMG China, said in a note emailed to WealthBriefingAsia. “However, it will be important for stablecoin issuers to balance this optimism with continued vigilance regarding practical safeguards and compliance with the new HKMA (Hong Kong Monetary Authority) framework – particularly in managing stablecoin risks and maintaining robust anti-money laundering standards.”

The Hong Kong Monetary Authority, the regulator and central bank, has reportedly yet to issue licences. 

According to The Standard (of Hong Kong), the new ordinance has “fuelled investor euphoria, driving the market value of over 20 stablecoin-related stocks up by HK$358.8 billion [$45.7 billion] since the start of this year." Such a move has prompted HKMA chief executive Eddie Yue Wai-man to warn about speculative bubbles forming in stablecoin stocks, the publication said. 

KPMG’s McSheaffrey said the new law “strengthens Hong Kong’s position as a leading international financial centre and hub for crypto innovation, and aligns Hong Kong with global standards in jurisdictions such as the EU, US, Singapore, and the UAE.”

“The new regulated environment will enable both investors and users to participate with greater confidence – knowing that risk management, transparency, and compliance are key priorities under the HKMA. 

“We are already seeing encouraging signs of wider market engagement. New entrants are actively exploring feasibility, while established players are preparing for licence applications under the new regime. Meanwhile we expect to see continued development in tokenised deposits and the e-HKD initiative – each representing important milestones in Hong Kong’s digital finance journey,” McSheaffrey added. 

In August 2023, Singapore, Hong Kong’s principal rival as an Asian financial centre, put stablecoin regulation on a stronger footing. The Monetary Authority of Singapore said that the regulatory framework applies to single-currency stablecoins pegged to the Singapore dollar or any G10 currencies, which are issued in Singapore. Meanwhile, in the US on 18 July, the Trump administration signed into law the GENIUS Act, a federal regulatory system for stablecoins. It requires 100 per cent reserve backing with liquid assets such as dollars or short-term Treasuries and requires issuers to make monthly, public disclosures of the composition of reserves.

(Editor’s note: Stablecoins, which use the same blockchain technology as cryptocurrencies such as bitcoin, constitute a paradox, being a hybrid kind of entity. “Cryptocurrencies” were originally thought of as rivals to state-backed “fiat” currencies such as the dollar, sterling or euro, by not being at the mercy of politically controlled central banks with their penchant for quantitative easing, bailouts and the rest. And yet as the crypto sector has gone more mainstream, so its link to conventional finance has developed. Perhaps it was always naïve to consider that cryptos would be tolerated as any kind of significant rival to state-backed money, given the implications for financing of debt and public spending.)