Hong Kong's Stablecoin Moment Eclipses Dollar Peg Debate

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The idea is that once there are global payments systems on blockchain for companies and consumers, the impacts of sanctions, tariffs and other kinds of trade curbs will be mitigated.

In theory, average citizens may be able to use HK dollar stablecoins to settle overseas purchases through apps like Alibaba Group's Alipay as early as next year, with the exchange rate difference dropping to zero.

It's the nightmare moment many banks have been dreading. The US, too, presumably.

In March, US Treasury Secretary Scott Bessent said the US would use stablecoins to ensure the US dollar hegemony in payments and protect its reserve-currency status.“As President Trump has directed,” Bessent said,“we are going to keep the US dollar the dominant reserve currency in the world, and we will use stablecoins to do that.”

Of course, the US is having enough trouble with“fiat” money. A“lackluster” auction of US Treasury securities fueled worries about disappearing demand while the supply of new debt increases.

This came amid Moody's Investors Service's downgrading of the US's AAA credit rating as national debt heads toward $37 trillion. Ray Dalio, founder of Bridgewater Associates, says Washington's fiscal trajectory is a bigger-than-acknowledged.

Mark Haefele, chief investment officer at UBS Global Wealth Management, says that“while the selling of US Treasuries in the immediate aftermath of the Moody's downgrade was relatively modest, Treasury yields have climbed steadily since the end of April as budget negotiations have come to the fore.”

Could stablecoins help address the problem? In a May 2025 study, Sang Rae Kim, economist at Kyung Hee University, looked at how reserve-backed stablecoins affect the Treasury markets and credit intermediation. Kim found that large stablecoin“issuance events induce statistically significant increases in Treasury prices.”

Yet as Chan's team plans for the future, current economic dislocations are creating challenges. Not least of which is being caught between a brawling US and China. Even so, it's worth remembering that Hong Kong's currency peg is the ultimate“widow maker” trade.

For more than two decades, hedge fund managers, George Soros most famously, have tested the HKMA. The peg endured years later, even as speculative investors like Kyle Bass, founder of Hayman Capital Management, and Bill Ackman, chairman of hedge fund Pershing Square Capital Management, bet against it.

Through assertive market intervention and fancy footwork, the HKMA has preserved the roughly 7.8 exchange rate established in 1983 .

For generations, Hong Kong's iron-clad link to the world's reserve currency served the economy well. Stability affords investment banks, exporters and entrepreneurs confidence to headquarter Asian operations in the city. It has long been touted as Hong Kong's secret weapon.

The most famous such assault came in 1997 and 1998 from Soros, who“broke” the British pound. After attacking the Malaysian ringgit and Thai baht, Soros targeted Hong Kong's peg and stocks. He lost. The HKMA overwhelmed Soros and his acolytes with a $15 billion show of force.

In targeting Hong Kong in recent years, hedge fund players like Bass tested Chinese leader Xi Jinping's mettle. One big worry is control. Hence, economist Zhou Luohua of Renmin University of China calls the peg the economy's“Achilles' heel.”