Hong Kong’s stablecoin ambitions are facing growing scrutiny as a high-profile debate in South China Morning Post underscores a deeper global tension: can countries adopt stablecoins without strengthening the dominance of the U.S. dollar?
With the city’s self-imposed March deadline for its first stablecoin licenses passing without clarity, the discussion has quickly evolved beyond regulation into a broader geopolitical and financial dilemma confronting emerging markets worldwide.
The dollar dominance problem
However, the main point of contention is the dominant position of dollar-backed stablecoins. Gary Liu states that nearly all of the $300 billion stablecoin market is denominated in US dollars, a situation that is only being further entrenched by policy moves such as the GENIUS Act. This is a clear case where such moves are hastening the pace of institutional acceptance and leaving less room for the development of alternatives.
On the flip side, Liu Xiaochun has a different, but critical, point of view. Liu argues that “US support for stablecoins, combined with opposition to CBDCs, appears to be a strategy designed to ensure that the private sector maintains a degree of control.” In this case, stablecoins are like cheques or chips used in casinos, useful for betting but ultimately backed by fiat currency.
Hong Kong’s strategic balancing act
Despite the ideological divide, both experts see Hong Kong as a crucial testing ground. The Hong Kong Monetary Authority has reviewed dozens of applications under its new stablecoin framework, favouring bank-led initiatives from players like HSBC, Standard Chartered, and OSL Group.
The financial rewards are considerable, especially when analysts at Citigroup estimate that the local stablecoin market could grow to a whopping $16 billion (HK$124.8 billion) in size. A report from NS3.AI also stated that, although the market may oscillate at around $8 billion, increased demand could propel it into further growth. Nevertheless, it is also a reminder of the limits of the “one country, two systems” model when giants from the mainland, such as Ant Group and JD.com, are forced out of the picture.
But beyond Hong Kong, the global picture is more complicated. From Nigeria to Argentina, stablecoins are now integral parts of financial life, enabling users to hedge against inflation, transfer value across borders, and avoid traditional banking systems. Each transaction, however, also reinforces the grip of the global dollar system.
Hong Kong’s likely model of regulated, bank-issued stablecoins tied to its own dollar-pegged currency might provide stability and trust. But it also reinforces the central problem: even attempts at innovation outside the traditional system might actually strengthen it.
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