–With a Discussion on RWA as a Breakthrough for Hong Kong’s Financial Innovation
Introduction: The Nature of Controversy and Regulatory Evolution
After the implementation of Hong Kong’s Stablecoin Ordinance, debates about USD stablecoins have been minimal, but narrowing the scope for issuing HKD stablecoins has sparked significant controversy. In my article “Will Introduction of the Stablecoin Act Trigger a Financial Tsunami?“, I explicitly stated that “Hong Kong least needs to issue HKD stablecoins”—a view aligned with the prudent stance of Hong Kong’s financial authorities. Interestingly, while the Hong Kong government adopted my suggestion to rename “virtual currencies” as “cryptocurrencies” during a policy meeting, it ultimately opted for the ambiguous term “digital currency.” This reveals policymakers’limited understanding of crypto assets and foreshadows regulatory challenges for HKD stablecoins.
Cryptocurrencies are digital currencies, but not all digital currencies are cryptocurrencies. Policymakers must acknowledge the unique attributes of crypto assets and avoid letting outdated regulatory frameworks constrain new financial innovations.
This article addresses three critical questions:
1. Why do HKD stablecoins carry structural risks?
2. What issuance mechanism can prevent systemic shocks?
3. Why RWA—not HKD stablecoins—is Hong Kong’s breakthrough for financial innovation.
1. Why Do HKD Stablecoins Carry Structural Risks?
First, the HKD operates under a linked exchange rate system, making it a de facto USD stablecoin. Issuing stablecoins pegged to the HKD adds leverage to the HKD itself. The HKD is not a standard currency but application within the USD ecosystem. To put it bluntly: Issuing a stablecoin atop USDT would be a joke—why do the same for HKD?
Allowing multiple issuers for HKD stablecoins increases volatility risks for the HKD and complicates the Hong Kong Monetary Authority’s (HKMA) ability to regulate it. If the HKD becomes unstable, how can HKD stablecoins remain stable? As noted in my earlier article “Will Introduction of the Stablecoin Act Trigger a Financial Tsunami?” : “Maintaining a fixed exchange rate is notoriously difficult. Historical lessons explain why Hong Kong avoids endorsing HKD stablecoins. What impact would issuing them have? Essentially, it adds leverage to the HKD. While this seems manageable if the peg holds and 24/7 convertibility is ensured.”
“Risks amplify under speculative attacks like those orchestrated by Soros. What will attacks look like in the new situation?”
“Could Hong Kong’s Stablecoin Ordinance become a feast for speculators—even a catalyst for a financial tsunami?”
Second, the HKD is a regional currency, primarily used in Hong Kong. Stablecoins, however, are global currencies. How can Hong Kong elevate the HKD to global stature? With a modest GDP (US$407 billion in 2024) and trade volume accounting for just 2.7% of global trade (including USD/RMB settlements), HKD demand is largely confined to financial market transactions.
The HKD issuance market is already monopolized by three major banks. Small enterprises cannot enter—and the same applies to HKD stablecoin issuance. While SMEs can use HKD stablecoins, they lack the capacity to issue them.
In short: The USD is the standard currency. Pegged currencies like the HKD should not issue stablecoins as if they were standard currencies.
2. What Issuance Mechanism Prevents Systemic Shocks?
As argued in “Will Introduction of the Stablecoin Act Trigger a Financial Tsunami?“: “HKD issuance sets the gold standard for sovereign stablecoins. It is managed exclusively by three institutions: HSBC, Standard Chartered, and Bank of China. Hong Kong’s team boasts over 40 years of stablecoin management experience—unmatched globally. Why can’t any Hong Kong bank issue currency? ”
This hinges on trust and credibility. While the USD reserves backing HKD issuance remain non-transparent, confidence in these three banks is unwavering—because they have earned it.
Similarly, HKD stablecoins should be issued only by these three banks. This requires minimal new regulations and imposes negligible burden on the HKMA.
Mechanism:
– Issuers deposit USD equivalent to the HKMA.
– The HKMA issues HKD stablecoins to them.
– Stocks can then issue crypto-backed securities purchasable with HKD stablecoins.
This seamlessly expands traditional finance into crypto finance. The HKMA holds USD (earning interest for banks), unlocking further innovation. Critically, HKD stablecoins would operate in parallel—not series—with the HKD, avoiding leverage amplification. Regulatory risks are contained under the HKMA’s oversight.
3. RWA: Hong Kong’s True Breakthrough, Not HKD Stablecoins
Issuing HKD stablecoins under current rules is high-risk and unsuitable as an innovation driver. While tokenizing assets (following the U.S. approach) is feasible, it offers little novelty. Hong Kong’s breakthrough lies in Real World Asset (RWA) tokenization.
Hong Kong excels in art, antiques, and real estate—antiques whose scarcity and value stability resemble Bitcoin’s. Transparent tokenization could significantly boost Hong Kong’s financial appeal. As Meng Yu, Chair of the Hong Kong China Financial Association, notes: “RWA is the priority at this stage.” HKD stablecoin demand may grow alongside RWA trading, turning it into a regional advantage. Only then will HKD stablecoins—and Hong Kong—thrive.
The most critical factor affecting innovation is regulatory issues, as the foundation of financial innovation lies in trust and transparency. Trust serves as the cornerstone of financial markets, while transparency constitutes their lifeline.
4. Regulation: The Linchpin of Innovation
Financial innovation rests on trust and transparency. In my series “The Regulation of Cryptocurrency” (Parts 1-4), I argue:
– Cryptocurrency is a unified market requiring a unified regulator—not fragmented oversight.
– Regulation should prioritize transparency. Fiat, stocks, and Cryptocurrency are all “Token”. Bitcoin’s history proves high transparency can redefine regulatory logic.
After 15 years of technical maturation, crypto’s focus has shifted from decentralization (a technical trait) to transparency (a philosophical imperative). Policymakers and institutions now recognize: *Transparency is crypto’s core value. The next phase will use Web3’s transparency principles to rebuild banking, brokerage, and business—ushering in a fairer world.
Our Chainless Transparency Platform is the mature infrastructure for this future. The winds of change are coming.
For deeper exploration, visit:
– Chainless HK (800k+ words/videos on crypto’s past and future)
-App Download: //www.chainlessdw20.com
