Legislation Gives Hong Kong a Head Start in the Stablecoin Competition

The internationalization of a currency is inherently a slow-moving process influenced by intertwined economic, political, and military factors, often lagging behind the pace of global economic and financial integration.

At present, while the global influence of the U.S. dollar shows signs of weakening, it remains undeniably dominant in the international financial system. The U.S. government, seeking to protect its interests, continuously reinforces the dollar’s position by leveraging its "dollar hegemony" to impose sanctions on other nations, intensifying global currency competition. The U.S. Clarity for Payment Stablecoins Act also aims to integrate stablecoins into national strategy, further consolidating the dollar’s supremacy in the global monetary system.

Against this backdrop, Hong Kong, as an international financial center with a robust financial market and active institutions, has taken the lead by enacting the Stablecoin Ordinance. This move alleviates concerns among traditional financial institutions about entering the stablecoin market, attracts more innovative stablecoin firms and exchanges, and strengthens Hong Kong’s position and influence in the stablecoin market, securing a first-mover advantage.

Development of HKD Stablecoins to Boost RMB Internationalization

In recent years, Hong Kong has actively collaborated with mainland China on central bank digital currency (CBDC) projects, jointly advancing cross-border payment pilots to lay the groundwork for scaling up the digital yuan.

At the end of 2020, the Digital Currency Research Institute of the People’s Bank of China (PBoC) and the Hong Kong Monetary Authority (HKMA) launched a cross-border digital yuan pilot, conducting two rounds of technical testing. The project achieved interoperability between the digital yuan system and Hong Kong’s Faster Payment System (FPS), as well as the use of digital yuan hard wallets in Hong Kong.

The development of HKD stablecoins not only enriches Hong Kong’s cross-border payment ecosystem but also expands the potential applications of the digital yuan in cross-border transactions. By exchanging into HKD stablecoins, the digital yuan can integrate into the stablecoin ecosystem, increasing the RMB’s share in cross-border clearing and settlement.

Furthermore, leveraging HKD stablecoins and the digital yuan, China can explore innovations in cross-border settlement systems, using CBDCs and stablecoins to reduce costs, improve efficiency and transparency, lessen reliance on systems like SWIFT, and enhance the resilience of cross-border payments.

Overall, RMB internationalization can be driven by a dual-engine strategy of "expanding financial use cases" and "technology-driven innovation," potentially increasing global acceptance and recognition of RMB clearing and settlement.

In terms of transactional scenarios, China can deepen regional cooperation, expand settlement partnerships, and leverage synergies to boost the RMB’s share in foreign trade.

For payment convenience, interoperability and mutual recognition of standards can reduce cross-border payment barriers, improve efficiency, and enhance the RMB’s appeal.

Regarding digitalization, while digitization alone does not equate to internationalization, it is a critical enabler. By accelerating the development of systems like CIPS and promoting the digital yuan and HKD stablecoins, China can improve payment efficiency while gradually reducing reliance on USD-dominated settlement systems.