Prevent financial disintermediation: reserves must be placed in Hong Kong banks

In response to market concerns that the widespread adoption of licensed stablecoins could lead to a large outflow of funds from the traditional banking system (i.e., the risk of "financial disintermediation"), thereby affecting loan and liquidity ratios, Christopher Hui offered a dose of reassurance. He emphasized that the HKMA had fully assessed this risk when designing the framework and had set up strict firewall measures.

Under the regulations, licensed issuers must hold qualifying "reserve assets" such as bank deposits and high-quality, highly liquid debt instruments, and these assets must be placed with banks in Hong Kong. This not only ensures the stablecoin's 1:1 redeemability but also effectively locks funds within the local financial system. The HKMA is also actively cooperating with organizations such as the Bank for International Settlements to ensure that Hong Kong's regulations align with international standards.