Key Takeaways
- Emerging stablecoin regulations in Asia emphasize local currency-denominated coins.
- Hong Kong’s new regime, which goes live on Aug. 1, could eventually pave the way for RMB-pegged stablecoins.
- South Korean lawmakers view won stablecoins as an important buffer against dollarization.
In Hong Kong and South Korea, emerging regulations promise to usher in a wave of stablecoins denominated in local currency.
This will create new opportunities in a space where digital dollars have long reigned supreme and could change the landscape of foreign exchange (FX) systems forever.
Recommended Secure Partners
Hong Kong To Launch New Stablecoin Regime
On Friday, Aug. 1, Hong Kong’s new stablecoin regime will enter into force, and potential issuers are already lining up to apply for permission to issue digital Hong Kong dollars (HKD).
Contenders to issue the first HKD stablecoin include the e-commerce giant JD.com and a joint venture between Animoca Brands and Standard Chartered.
Such domestic stablecoins could reduce the territory’s reliance on USD-pegged assets, especially in the crypto sector and FX markets.
What’s more, Hong Kong’s new regime could pave the way for stablecoin regulation in mainland China.
Chinese firms are already lobbying for Beijing to allow the issuance of offshore yuan (RMB)–pegged stablecoins via Hong Kong licences. They argue this would help counter U.S. dollar dominance in tokenized finance and support RMB internationalization.
Dollarization Concerns Motivate South Korean Lawmakers
Concerns over digital dollarization and capital flight have also motivated lawmakers in South Korea, who are currently preparing to legalize KRW-pegged stablecoins.
“When the tsunami of dollar stablecoins arrives, the Korean won may barely be used at all,” National Assembly member Min Byung-deok warned recently.
Others have noted that allowing KRW-backed stablecoins won’t immediately fix the problem, however.
Rather than reducing the use of USD stablecoins, “issuing won-based stablecoins could make it easier to exchange them with dollar stablecoins,” Bank of Korea Governor Rhee Chang-yong cautioned in June.
This could “make it difficult for us to manage foreign exchange,” he added
The Role of Stablecoins in Foreign Exchange
With major Asian economies on the brink of a boom in local currency stablecoins, Rhee Chang-yong’s focus on FX is warranted.
For early adopters, dollar-pegged stablecoins already play an important role in the FX market.
There are now dozens of cross-border payment platforms that use stablecoins as a settlement layer, powering everything from remittances to large business-to-business transactions.
The basic model is simple: A user wanting to swap British pounds (GBP) for Korean Won rupees (KRW) buys stablecoins like USDC or USDT with pounds, transfers them instantly to a South Korean off-ramp, and redeems for local fiat currency.
This can be done manually using crypto exchanges. But it is increasingly automated, with emerging stablecoin rails from the likes of Visa extending the concept to the mass market.
As long as dollar-pegged coins dominate, the standard model is likely to prevail. But in a more heterogeneous stablecoin market, alternative FX mechanisms become possible.
Multi-Currency Stablecoin Routing
When moving from one fiat currency to another, implementing a stablecoin swap in the middle might at first seem like an unnecessary extra step.
Consider the following models for exchanging GBP for KRW:
Model A: GBP→USDC→KRW
Model B: GBP→GBP token→KRW token→KRW
The current, dollar-focused market, favors model A, with various dollar-denominated coins fulfilling the role of digital settlement asset. But in a future with more non-dollar stablecoins, there may be advantages to model B.
For one thing, USD stablecoin liquidity can’t be taken for granted in countries with strict capital controls. In contrast, a growing number of countries are focused on cultivating local currency stablecoins.
Integrating domestic stablecoins into FX flows may also ease connection to local payment rails, letting users off-ramp to their bank account or digital wallet of choice with fewer intermediaries.
Finally, a strong FX corridor between two specific countries may attract dedicated liquidity providers focused on local stablecoin pairs.
With sufficiently deep liquidity pools, Model B could reduce FX spreads by cutting out the dollar, leading to cheaper swaps for users.
Evolving FX Markets
The companies lining up to issue HKD stablecoins have their own motivations for streamlining FX flows.
JD.com has a global footprint and operates one of the most important platforms for international merchants seeking access to the Chinese market.
Meanwhile, with FX trading desks in over 50 countries and a strong presence across Asia, Standard Chartered is ideally placed to ride the wave of local stablecoins.
Through its venture arm, the bank established the stablecoin FX company Zodia Markets. In a recent press release, the company stressed its support for non-USD stablecoins, claiming that “we’re in a unique position to reengineer traditional foreign exchange capital flows with real time stablecoin settlement across borders.”
Stablecoin–Stablecoin Swaps
In most FX contexts, fiat currency is the ultimate destination. But for traders who don’t need to immediately off-ramp to fiat, a more diverse stablecoin market creates additional opportunities.
On exchanges like Binance, Uniswap, and Curve, FX-like pairs such as EURC/USDC already function as crypto-native currency markets.
Traders arbitrage price differences, and these pairs closely reflect real FX rates, but with the advantages of instant settlement and 24/7 market access.
Recommended Secure Partners
James Morales is CCN’s blockchain and crypto policy reporter. He has been working in the news media since 2020, writing about topics such as payments, banking and financial technology. These days, he likes to explore the latest blockchain innovations and the evolving landscape of global crypto regulation.
With an educational background in social anthropology and media studies, James uses his platform as a journalist to explore how new technologies work, why they matter and how they might shape our future.
