How much stablecoin does Hong Kong need?

Hong Kong's Stablecoin Ordinance came into effect on August 1, 2025, and began accepting license applications from fiat-pegged stablecoin issuers. The first batch of licenses is expected to be issued in early 2026. According to the HKMA, as of the end of August, a total of 77 expressions of interest had been received, with the first round of applications closing on September 30, indicating that the Hong Kong stablecoin licensing process is progressing smoothly. There have been some differing views on Hong Kong's stablecoins recently. Given the Sino-US rivalry, it seems unlikely that the new opportunities for the on-chain development of Hong Kong dollar and offshore RMB stablecoins will be abandoned. Offshore RMB stablecoins may also help promote the internationalization of the RMB and drive an increase in the scale of offshore RMB bonds. Regulators may still be interested in promoting Hong Kong dollar and offshore RMB stablecoins, provided they are compliant, effectively regulated, and manageable. We anticipate that after the first batch of stablecoin licenses are issued in Hong Kong early next year, they will primarily test the waters for Hong Kong dollar stablecoins. The issuance of offshore RMB stablecoins may require some preparation, including increasing the size of the offshore RMB bond market. The Hong Kong Monetary Authority's requirements for stablecoin applications focus on whether they can "play a genuine and beneficial role in the financial system." We assume that Hong Kong dollar stablecoins will be primarily used for cross-border trade settlement in Hong Kong. In 2024, Hong Kong's total trade volume was US$1.2 trillion. Assuming 5% of this was settled in Hong Kong dollar stablecoins, the total amount would exceed US$60 billion. Assuming a velocity of 6, the demand for Hong Kong dollar stablecoins solely for trade settlement would be US$10 billion. Following the same logic, China's total trade volume in 2024 will be $6.2 trillion. With a 5% penetration rate and a circulation velocity of around 6%, this means that demand for RMB stablecoins for trade settlement will exceed $50 billion. This may be a lower limit for reasonable market demand for the Hong Kong dollar and RMB stablecoins, and it does not include demand from crypto asset trading or even the tokenization of real-world assets. However, in terms of supply capacity, the Hong Kong dollar stablecoin can basically meet demand; however, the supply capacity of RMB stablecoins is seriously lacking.

· According to the data from the HKMA, as of 2024, the outstanding balance of Hong Kong dollar bonds will be US$153.7 billion. After deducting US$114.2 billion of corporate bonds, the balance of Hong Kong government bonds will be around US$40 billion, corresponding to a demand of US$10 billion for Hong Kong dollar stablecoins. The coverage ratio will be less than 4 (taking into account that the US$40 billion of government bonds will not all be short-term bonds and the reserve assets behind the stablecoins are mainly short-term government bonds);

· On the other hand, the supply of offshore RMB stablecoins will be mainly limited by the low scale of offshore RMB government bonds in Hong Kong. According to the HKMA, offshore RMB government bonds will be less than $50 billion by 2024. However, as calculated above, trade settlement demand alone will drive $50 billion in demand for RMB stablecoins. The underdeveloped offshore RMB bond market will be the biggest constraint on the development of offshore RMB stablecoins. Looking ahead, the development path for Hong Kong's stablecoin is likely to begin with the issuance of licenses early next year. Under the premise of compliance and effective supervision, the Hong Kong dollar stablecoin will be the first to expand in scale. The issuance of offshore RMB government bonds (including central bank bills) may be increased, and the scale of RMB swaps may also increase to boost offshore RMB holdings. Only after these relevant preparations are in place can the offshore RMB stablecoin truly achieve scale.

Chart1：Hong Kong dollar bond size and offshore RMB bond size