Citi released a stablecoin report in light of the enforcement of the stablecoin regulations in Hong Kong from today, estimating the Hong Kong stablecoin market size to approximate USD16 billion (about HKD125.6 billion) as a median, with upside risks. Due to Hong Kong's relatively stringent regulatory framework, companies with licenses, compliance practices, and robust business plans will outrun in the long-term competition, in Citi’s view.

The broker estimated the median size of the Hong Kong stablecoin market to be USD16 billion, with fluctuations of USD8 billion based on different instruments. Upside risks stem from the expansion of the monetary supply, increased external demand for Hong Kong stablecoins, and a surge in “on-chain” activities. In terms of interest rates, stablecoins may increase the demand for short-term high-quality liquid assets, potentially compressing short-term yields and promoting the development of the local fixed income market.

Related NewsHSBC Research: Domestic & Northbound Funds Add Holdings in AI Infra & Finance, Cautious on Consumer-related Industries
For the HKD, stablecoins can serve as an additional use case for domestic and cross-border transactions. At the moment, the key role of the HKD in cross-border transactions is for international investors trading Hong Kong-listed stocks. If HKD stablecoins can be more widely used in areas such as cross-border trade settlement, it will increase the usage of the HKD among international users.

If stablecoin-supported cross-border trade settlement can considerably reduce transaction costs compared to traditional banking infrastructure, and if funding costs and FX risks are manageable, stablecoins could be attractive to enterprises. If stablecoin use cases further expand to tokenized investment products, it may attract more investors to adopt the RMB.