Stringent regulations on stablecoins are crucial for Hong Kong as the city strives to become a global digital asset hub, and its multicurrency-referenced stablecoin is expected to counterbalance the current United States dollar-dominated market, a policymaker said on Friday.

The global stablecoin market reached a new all-time high in July with total market capitalization growing to $261 billion, while the market share of non-US dollar pegged stablecoins relative to those pegged to the US dollar remained below 1 percent, according to a report released earlier this month by crypto-specialized media CoinDesk.

In an exclusive interview with China Daily, Legislative Council (LegCo) member Adrian Pedro Ho King-hong said he believes the landscape could change following the implementation of the special administrative region’s Stablecoins Ordinance.

READ MORE: Hong Kong Monetary Authority sets bar high for stablecoin issuers

“While the global stablecoin markets are dominated by the United States (US), I think Hong Kong’s stablecoins offer a counterbalance to this dominance, mainly because Hong Kong’s stablecoins also open up to offshore renminbi as a peg currency,” said Ho, who is also deputy chairman of the Stablecoins Bill Committee.

The SAR government’s Stablecoins Ordinance went into effect on Aug 1, establishing a regulatory framework and introducing a licensing mechanism for the issuance of the digital asset. The legislation requires any individual or entity issuing fiat-backed stablecoins in the city — or those pegged to the Hong Kong dollar, regardless of where they are issued — to obtain a license from the Hong Kong Monetary Authority (HKMA). Stablecoin holders also need to undergo identity verification.

The law has sparked debate among the public and the industry, with some claiming that the authorities have set the bar too high.

However, Ho believes, as Hong Kong ramps up its efforts to position itself as a global digital asset hub, it is important for the city to have a solid regulatory framework to create a safe market environment.

“As stablecoin becomes more popular, we need to make sure that we safeguard investors as well as users when they are transacting through stablecoin and also other forms of digital asset,” he said. “In the longer run, this is what makes us unique for safe transactions.”

He also added that “it is only fitting” to establish such a stringent regulatory framework since “unregulated stablecoin activities can be a systemic risk”.

“If we don't have a strong regulatory framework, it would open up opportunities for criminal activities, money laundering as well as other illicit activities regarding any kind of harm to our financial stability,” he emphasized.

READ MORE: Hong Kong’s stablecoin bet is a smart play for the future of finance

Virtual currencies have become a common payment instrument for online scammers due to crypto transactions’ anonymity and irreversibility. Hong Kong police on Monday revealed a recent case involving a 47-year-old woman who fell victim to an online romance scam. The victim borrowed HK$1.6 million ($204,537), converting the amount into the stablecoin Tether and sending it to the scammer’s digital wallet.

Meanwhile, recent excitement and speculation surrounding stablecoins have triggered abrupt market movements in Hong Kong’s financial market. The HKMA and the Securities and Futures Commission (SFC) on Thursday issued a joint statement, urging the public to remain vigilant when making investment decisions amid these frenetic situations.

“They (investors) should always be mindful of the misleading prospects of gains from short-term price volatility and be wary of unsubstantiated claims, particularly those appearing on social media,” said SFC CEO Julia Leung Fung-yee.

Contact the writer at gabylin@chinadailyhk.com