Hong Kong Passes Strict Stablecoin Bill, Sets Global Benchmark

Hong Kong’s Legislative Council approved its first stablecoin bill on May 21, 2025. The new law imposes banking-style regulations on all issuers of stablecoins that are pegged to fiat currencies. The move aims to set strict standards for digital assets in the territory.

The rules require stablecoin issuers to maintain 100% high-quality reserves, such as cash or short-term U.S. Treasury bills. These reserves must be kept separate from the company’s operating funds and be ready for audit at any time. Holders must have the right to redeem stablecoins for their full value on the same day without paying fees. The law also enforces leverage limits and demands strong liquidity buffers, similar to those for traditional banks.

According to the Hong Kong Monetary Authority (HKMA), license applications for stablecoin issuers open on August 1, 2025, with the goal to have the full system running by the end of the year. Implementation depends on pending secondary legislation, including guidelines on disclosure templates. HKMA stated that “the new regime places virtual asset issuers under strict oversight to protect investors and the financial system.” Legal experts estimate that for every $1 billion in stablecoins issued, about $30 million must be held in capital buffers, not including the loss of possible returns that might come from holding only government securities.

The new rules follow lessons from recent digital asset failures. The 2022 collapse of TerraUSD, which was not backed by hard collateral, and the temporary loss of value for USDC in March 2023 after a major U.S. bank failure, highlighted the risks involved. In response, Hong Kong is demanding strict collateral and same-day redemption to handle possible investor withdrawals quickly.

Major companies are already responding. Ant International, the offshore arm of Alipay, intends to seek a license despite higher operating costs, expecting a first-mover advantage. Joint ventures for stablecoins backed by the Hong Kong dollar have been formed by larger firms such as Standard Chartered, Animoca Brands, and HKT.

The timing comes as other regions move ahead on stablecoin rules. The United States has advanced the GENIUS Act, planned to require similar cash and Treasury bill backing but with different rules on leverage. Singapore’s monetary authority is also preparing its own regulations for digital assets.

The law likely favors larger, bank-backed issuers who can absorb the required buffers and compliance costs. Smaller firms may choose to leave the market or partner with licensed banks. The HKMA will release more guidelines on anti-money laundering and transaction screening in July.

Other expected steps include new rules on public disclosure of reserves and pilot projects to test cross-border payments with partners in Thailand and the UAE. Stablecoins denominated in Hong Kong dollars may face foreign exchange challenges for international redemptions, possibly affecting their cost and market spread.

Hong Kong is shifting its approach from a lightly regulated model to strict oversight with its new stablecoin law. The effectiveness of these measures will depend on how issuers and the market respond in the coming year.

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