First: What is a stablecoin?

A stablecoin is a type of cryptocurrency whose value is tied to a stable asset. This is usually a national currency such as the US dollar or the euro. The purpose is to combine the benefits of digital assets (speed, programmability, transparency) with the price stability of traditional currencies.

There are different types of stablecoins:

• Fiat-backed: Pegged 1:1 with real money reserves in a bank.
• Crypto-backed: Pegged to crypto collateral like Ethereum.
• Algorithmic: Maintain value using code and market incentives (these have a poor track record and often fail).

Hong Kong’s model is the fiat-backed kind, fully collateralized and tightly regulated.

What Is Hong Kong doing?

In early 2024, the Hong Kong Monetary Authority (HKMA) released a detailed proposal for regulating stablecoins. This framework is designed to ensure that any stablecoin pegged to the Hong Kong Dollar is:

• Backed by 100% fiat reserves (held in cash or safe government securities),
• Audited and transparent,
• Issued only by licensed institutions.

One of the first players is RD Technologies, which is developing the “HKDR,” a stablecoin backed by the Hong Kong Dollar. It is being positioned for business-to-business payments and settlement.

How is this different from global stablecoins?

The global stablecoin landscape is dominated by two big players: USDC (issued by Circle) and USDT (Tether). These are USD-backed and widely used for trading, settlement, and payments in the cryptocurrency ecosystem.

Compared to these, Hong Kong’s stablecoins differ in four key ways:

1. Regulatory clarity: Hong Kong has a firm legal framework, unlike the evolving regulations in the U.S.
2. HKD Peg: Pegged to the Hong Kong Dollar, not the globally dominant USD.
3. Institutional focus: Targeted at businesses, not individuals.
4. Limited use cases: No access to DeFi, limited exchange availability.

What Are the Benefits?

• Stronger trust: Regulated, transparent, and fully backed coins are more resilient to failure.
• Efficiency for business: Could improve cross-border payments and asset settlement.
• Financial innovation: Opens doors to tokenized finance in Hong Kong.

In time, this could impact how Hong Kong-listed companies pay dividends, or how shares are settled. But we’re not there yet.

What are the risks or downsides?

• Not Retail-Friendly: You can’t use HKDR for daily spending or saving.
• Low Liquidity: No widespread support on exchanges or apps.
• Surveillance Potential: Fully traceable and controllable by authorities.
• Limited Demand: HKD does not have global currency appeal like the USD.

How does this affect dividend investors?

For now, it doesn’t. If you are investing in Hong Kong dividend growth or Blue Chip stocks, there’s no need to use a stablecoin. Stocks are still bought and dividends still paid in HKD. Nothing changes from an investment perspective.

However, if in the future stablecoins are used by the HKEX or large companies for dividend settlement, we’ll report it and help you adapt. Until then, there is no action needed.

The bottom line

Hong Kong’s stablecoin initiative is an important infrastructure project. It will likely improve how institutions settle payments and manage digital assets. But it is not yet relevant for long-term investors focused on growing income through stocks.

We are watching the space closely. For now, stay focused on reliable companies, growing dividends, and managing risk. When the landscape changes, you’ll be the first to know—right here.