Today, each note-issuing bank deposits U.S. dollars with the government’s Exchange Fund at the fixed rate of HK$7.80 per dollar and receives Certificates of Indebtedness in return, against which it prints banknotes.

Yue drew the parallel in a December 2023 blog post.

Pre-1935 banknotes issued by commercial banks in exchange for deposited silver were a form of “private money,” Yue wrote, and stablecoins function as their blockchain-based equivalent — tokens with stable value that can serve as a medium of exchange on-chain.

A strict identity regime

The licenses come with one of the world’s strictest KYC frameworks for digital money.

Under the HKMA’s AML guidelines, licensed stablecoins can only be transferred to wallets whose owners have been identity-verified. The travel rule applies to transfers above HK$8,000 (~$1,000).

In practice, this means HKD stablecoins will likely embed compliance checks into their smart contracts, restricting transfers to wallets listed in an on-chain white list. That makes them structurally different from freely transferable tokens like USDT or USDC.

A HKD CBDC takes a back seat

The bank-led stablecoin model also reflects the HKMA’s decision to deprioritize its central bank digital currency for retail use, as an 11-group pilot program completed in October found the retail case was weak.

CBDCs have historically been a big theme at Hong Kong Fintech Week. Last year, there was barely a mention. Instead, stablecoins were the hot topic.

Standard Chartered CEO Bill Winters said at the time Hong Kong’s push into stablecoins and tokenized deposits could “lay the foundation for a new era of digital trade settlement,” positioning them as a new medium for cross-border commerce.

Whether the market agrees remains to be seen.

Stablecoins are a roughly $310 billion asset class, and USD-denominated tokens dominate nearly all of it.

Data from CoinGecko shows that the largest stablecoins by market cap are dollar-pegged, with no euro-or yen-pegged tokens breaking into the top ranks.

Hong Kong is betting that regulated, bank-issued HKD stablecoins can carve out a role in regional trade settlement, issued by the same institutions, under the same constraints, on new rails.

The question is whether a non-dollar stablecoin, however tightly regulated, can build the network effects needed to compete.

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