The Stablecoin Dilemma Facing Every Non-US Economy
Hong Kong’s Pivotal Moment in the Global Currency Race
As March draws to a close, Hong Kong finds itself at a critical juncture in the evolving world of digital finance. The city’s largest English-language newspaper, the South China Morning Post, recently hosted a fascinating debate that cuts to the heart of a challenge facing governments worldwide. With Hong Kong’s self-imposed deadline for issuing its first stablecoin licenses approaching without any official announcement, the discussion couldn’t be more timely. At stake is a question that keeps economic policymakers around the globe awake at night: by embracing dollar-backed stablecoins, are countries inadvertently tightening the very chains they’ve been trying to break free from? It’s a modern paradox that highlights the tension between practical financial innovation and long-term economic sovereignty.
Understanding the Dollar’s Digital Dominance
The debate featured two prominent voices with contrasting perspectives: Gary Liu, co-founder of Terminal 3 and former chief executive of the South China Morning Post, and Liu Xiaochun, an economist from Shanghai Jiao Tong University. Gary Liu made a compelling case that America’s GENIUS Act might go down in history as the most transformative digital-asset policy decision we’ve seen. His reasoning is straightforward but powerful: with an astonishing 99% of the $300 billion stablecoin market denominated in US dollars, the legalization of these digital instruments has essentially rolled out the red carpet for institutional capital to flood in. For countries hoping to build alternative financial systems that don’t revolve around the dollar, Liu warns that time is running out fast. The window of opportunity is closing, and those who hesitate may find themselves permanently locked into a dollar-dominated digital future.
Liu Xiaochun, the economist, took a more skeptical and politically charged view of the situation. In his assessment, Washington’s decision to ban Central Bank Digital Currencies (CBDCs) while simultaneously legalizing private stablecoins wasn’t an accident or a matter of technological preference—it was a calculated move to protect the revenue streams of the cryptocurrency industry. His logic is simple: if the US government had launched its own digital dollar, private stablecoins would have become obsolete overnight. Why would anyone use a private company’s digital dollar when they could use an official government version? To drive his point home, Liu Xiaochun compared stablecoins to checks or casino chips—they’re representations of money, symbols that hold value, but at the end of the day, they still need to be converted back into actual government-issued currency for final settlement. This comparison underscores his view that stablecoins, despite all their technological sophistication, remain fundamentally dependent on the traditional financial system they claim to be disrupting.
Where Real People Actually Use Stablecoins
Beyond the theoretical debates, Liu Xiaochun painted a vivid picture of how stablecoins are actually being used on the ground in countries facing economic challenges. In Turkey, where the lira has been notoriously volatile, workers are turning to dollar stablecoins as a digital safe haven to protect their savings from rapid currency depreciation. In Nigeria and Argentina, where inflation has ravaged local purchasing power, ordinary people are using these digital dollars to preserve the value of their hard-earned money. The use cases extend beyond individual savings: technology companies are increasingly paying their offshore developers through stablecoins, sidestepping the expensive and slow traditional banking infrastructure. Merchants who need to trade with nations facing international sanctions have found stablecoins to be a lifeline, allowing them to route payments outside the conventional banking system that would otherwise block their transactions.
This real-world adoption pattern reveals why the debate matters far beyond China or Hong Kong. Every regulator in emerging markets faces the identical paradox. Dollar stablecoins genuinely solve problems—Gary Liu pointed out that the global remittance market is worth nearly $1 trillion annually, and stablecoins can make these transfers faster and cheaper. But here’s the catch: every time someone in Argentina downloads a wallet and converts their pesos to USDC, every time a Nigerian merchant accepts payment in Tether, every time a Turkish worker protects their savings in digital dollars, the dominance of the US dollar gets reinforced. Each individual transaction makes perfect sense for the person making it, but collectively, these millions of rational decisions are building a digital infrastructure that further entrenches the dollar’s structural advantage in the global economy. It’s a classic case where individual incentives and collective interests point in opposite directions, and right now, individual incentives are winning decisively.
Hong Kong’s Unique Role as a Testing Ground
Both participants in the debate recognized that Hong Kong’s upcoming stablecoin licenses carry significance that extends well beyond the city’s borders. Gary Liu framed them as “a good example of how ‘one country, two systems’ works,” referring to the framework that theoretically allows Hong Kong to maintain its own economic and legal systems while remaining part of China. Liu Xiaochun offered a slightly different perspective, viewing Hong Kong more pragmatically as a settlement hub—a place where Chinese companies can establish a foothold as they expand into countries plagued by volatile currencies and restrictive capital controls. Both views have merit, and they’re not necessarily contradictory; Hong Kong has always thrived by being many things to many people.
The Hong Kong Monetary Authority has been busy reviewing applications under the Stablecoins Ordinance, which became law last August. Out of 36 applications, three names have emerged as frontrunners: HSBC, a venture led by Standard Chartered, and OSL Group. The regulator’s apparent preference for bank-led issuers sends a clear message about their priorities—they’re betting on institutional credibility and stability over the speed and innovation that might come from fintech startups. This conservative approach has its merits in a field where consumer protection is paramount, but it also reveals something about Hong Kong’s strategy: they’re not trying to revolutionize finance so much as to carefully manage its evolution. Notably, mainland Chinese giants Ant Group and JD.com both withdrew their applications under pressure from Beijing, a sobering reminder that the “one country, two systems” framework has practical limits that neither panelist spent much time discussing, though the implications hang heavy over the entire conversation.
The Global Context and Closing Window
The timing of Hong Kong’s stablecoin initiative couldn’t be more significant. The GENIUS Act in the United States is actively reshaping how stablecoins flow around the world, creating new pathways and incentives that favor dollar-denominated instruments. Meanwhile, Russia is exploring its own stablecoin project, likely motivated by sanctions and a desire to create payment systems beyond Western control. The European Union is pushing hard for euro-based alternatives under its MiCA (Markets in Crypto-Assets) regulatory framework, recognizing that if they don’t act now, the dollar’s digital dominance will become unshakeable. These parallel developments show that policymakers worldwide understand what’s at stake: the architecture being built today will determine the structure of international finance for decades to come.
Hong Kong’s answer to this challenge—regulated, bank-led stablecoins denominated in Hong Kong dollars but ultimately anchored to the US dollar through the city’s long-standing currency peg—is nothing if not pragmatic. It reflects the city’s historical role as a bridge between East and West, between innovation and stability, between Chinese influence and international finance. But this pragmatic solution also confirms the very dynamic that Gary Liu warned about: the window for building financial systems outside the dollar’s orbit is closing with alarming speed. Every day that passes with dollar stablecoins gaining users, building infrastructure, and establishing network effects makes it exponentially harder to create a viable alternative. Hong Kong’s approach may be the right one for the city’s unique circumstances, but it also represents a kind of acceptance that the dollar’s digital dominion is already too powerful to challenge head-on. Instead, the strategy seems to be to find the most advantageous position within that dollar-dominated system rather than attempting to build something entirely separate. Whether this represents wisdom or resignation probably depends on your perspective and your timeline—what looks prudent in the short term might look like a missed opportunity when viewed from the vantage point of 2040 or 2050.
