Digital Money’s New Plumbing

• Digital money is moving into core financial infrastructure. Stablecoins, tokenized deposits, and CBDCs increasingly affect settlement, liquidity, bank funding, and capital-market structure.
• Competing models are emerging. The United States is scaling regulated stablecoins, Chinese Mainland is building CBDC-based public rails, and Hong Kong SAR is becoming a key testing ground where private and public digital money converge.
• For investment professionals, the real contest is over financial plumbing: which settlement rails, governance models, interoperability standards, and network effects become the preferred cash leg for tokenized securities, collateral, and cross-border transactions.

In April 2026, the Hong Kong Monetary Authority (HKMA) granted its first stablecoin issuer licenses, marking a shift from experimentation to regulated adoption. Such a licensing decision matters because stablecoins are becoming embedded in market infrastructure through their reserve-backing and settlement role as they scale, creating links to short-term securities, bank balance sheets, and liquidity conditions. Digital money has evolved beyond a mere cryptocurrency or fintech story.

In this blog post, digital money refers to three forms: regulated stablecoins, tokenized commercial bank deposits, and central bank digital currency (CBDC), each with different implications for settlement, liquidity, and control. The article looks at where they matter across payments, banking and, above all, capital markets.

The three forms may appear to function similarly as digital money, but their risks and market effects depend on who issues them, what backs them, how redemption works, which rail they settle on, and where finality and control sit. Exhibit 1 illustrates this flow: issuer → backing assets → redemption → settlement rail → finality/control points. Viewed through this organizing lens, two contrasting models of digital money emerge: a bottom-up model where stablecoins were developed privately and scaled before regulation (as found in the US), and a top-down model built on public digital rails (the approach in the Chinese Mainland). Hong Kong SAR serves as the practical bridge where both approaches are moving into live implementation.

Exhibit 1: Digital Monetary Plumbing

The US model is best understood as bottom-up: private innovation scaled first, and regulation followed. Stablecoins gained traction by offering 24/7 transferability, faster cross-border settlement, and compatibility with tokenized activity on shared digital infrastructure. The IMF notes that issuance doubled over the past two years, while Federal Reserve staff report that market capitalization of stablecoins rose about 50% in 2025, alongside surging transaction volumes.

Exhibit 2: Stablecoin Market Capitalization, 2022-2025 (billions USD)

That growth showed stablecoins were no longer a niche-market experiment. In July 2025, the GENIUS Act became law, creating the first US federal framework for payment stablecoins and clarifying eligible issuers, reserve standards, redemption, and supervision.1 The broader US turn away from developing retail CBDC reinforced the policy direction of favoring private issuers, leaving more room for privately issued digital dollars to scale. The US story is now about private digital money entering a formal regulatory perimeter and, by extension, core market infrastructure.

For finance professionals, stablecoins matter as they intersect with banking, liquidity, and market structure. On the banking side, they raise questions about deposit migration, funding stability, and whether some transaction balances shift from traditional bank deposits into blockchain-based infrastructure. Federal Reserve analysis explicitly frames stablecoins as a potential challenge to deposits, credit, and intermediation, even if the effects are unlikely to be immediate or one-directional. On the capital markets side, Bank for International Settlements (BIS) research finds that inflows into dollar-backed stablecoins lower three-month Treasury bill yields (which back those stablecoins) by a few basis points, with stronger effects during periods of bill scarcity. Stablecoins may not replace banks in the foreseeable future, but they increasingly affect what regulators and market participants care about most: settlement, liquidity, and market structure.

The Chinese Mainland model is almost the mirror image of the US path. Rather than allowing private digital money to scale first and then regulating it, the Chinese Mainland has taken a state-coordinated approach in which innovation is pursued within a tightly managed monetary and financial perimeter. Since the September 2021 People’s Bank of China (PBoC) notice, the PBoC has treated cryptocurrency-related business activities as illegal financial activities in the Chinese Mainland, a stance the PBoC reiterated in late 2025.

At the same time, Beijing has not rejected the underlying advantages of digital money. Instead, it has sought to capture them through public infrastructure. The digital yuan (e‑CNY) is now the world’s largest live CBDC pilot. By November 2025, it had processed more than 3.4 billion transactions worth roughly USD 2.3 trillion.

Exhibit 3: e-CNY Transaction Volume, 2021 – 2025 (trillions USD)

A further shift came in January 2026, when a new framework moved the e‑CNY beyond a purely cash-like instrument toward a more deposit-like form of digital money. Official statements from Chinese Mainland authorities said balances held with authorized commercial banks could be treated as bank deposit liabilities and earn interest in line with prevailing deposit-rate rules. That does not guarantee mass adoption, but it materially changes the e‑CNY’s competitive position relative to non-interest-bearing private alternatives.

The most revealing part of the Chinese Mainland model is now cross-boundary. In May 2024, HKMA and the PBoC expanded the cross-boundary e‑CNY pilot, allowing Hong Kong SAR residents to open wallets locally and top them up via Faster Payment System (FPS), the world’s first linkage between a faster payment system and a CBDC system. In parallel, Project mBridge reached minimum viable product (MVP) stage in June 2024 as a multi-CBDC platform for cross-border payments and foreign exchange settlement. By January 2026, Atlantic Council analysis reported that mBridge had processed more than 4,000 cross-boundary transactions worth approximately USD 55.49 billion, with the e‑CNY accounting for more than 95% of settlement volume. The e-CNY story now extends beyond a domestic pilot into cross-boundary settlement infrastructure. Over time, these public rails could facilitate greater renminbi (RMB) internationalization.

Europe is pursuing a different path for public money through the digital euro. Like China, the EU is still placing central bank money at the center of its digital strategy, but it frames its rationale less around operational rollout and more around sovereignty, privacy, and payments resilience. The European Central Bank (ECB) completed the digital euro preparation phase in 2025 and says that, if legislation is adopted in 2026, a pilot could begin in 2027 and the Eurosystem could be ready for potential digital euro issuance in 2029. In other words, the EU points to another version of public digital money development, not market-led like the US, and not yet as operationally advanced as China, but increasingly shaped by concerns over strategic autonomy and dependence on non-European payment providers.

That said, scale and state backing do not automatically translate into mainstream preference. Usability, merchant acceptance, and user incentives still matter, and determine whether policy-led deployment and controlled use cases translate into widespread adoption.

Hong Kong SAR matters because it is one of the few places where public-sector digital money experiments and private-sector digital money regulation are advancing in parallel. It is both a front corridor for cross-boundary CBDC connectivity and an emerging regulated venue for private stablecoin issuance. That makes it more the venue where the US and the Chinese Mainland approaches become visible side by side.

On the public rail side, Hong Kong SAR already functions as the clearest external corridor for the Chinese Mainland’s digital money model. The FPS–e‑CNY linkage allows Hong Kong SAR residents to open and fund e‑CNY wallets locally, while the HKMA’s role in Project mBridge places the city inside the most advanced multi-CBDC cross-boundary settlement experiment currently in operation.

At the same time, HKMA has moved to create a regulated pathway for private stablecoins. The Stablecoins Ordinance took effect in August 2025, bringing fiat-referenced stablecoin issuance under a licensing regime that the HKMA administers. Then, in April 2026, HKMA granted its first two stablecoin issuer licenses to Anchorpoint Financial Limited and The Hongkong and Shanghai Banking Corporation Limited. Hong Kong SAR is therefore entering the first live phase of licensed issuance, with the prospect of Hong Kong Dollar-backed stablecoins emerging under formal supervision.

There is also an emerging institutional story around tokenized deposits. In Hong Kong SAR, HSBC launched a Tokenized Deposit Service for corporate cash management in 2025 and later piloted atomic settlement on the Canton Network, showing how banks are building a bank-based digital cash leg for treasury and settlement use cases. Similar momentum is visible elsewhere, reinforcing the view that tokenized deposits may become an important institutional complement, and possible rival, to private stablecoins.

With the two models and Hong Kong SAR’s dual role in view, the “competition” starts to look less like a contest between product labels and more like a contest over settlement rails, governance models, and the network effects that determine where liquidity and usage concentrate.

Exhibit 4: Digital Money Compared: Structural and Risk Attributes

The emerging competition in digital money is not a token-versus-token race, but a contest over which settlement architectures become embedded in real financial workflows. What matters is not the label on the instrument, but the rails it runs on, the governance that underpins it, and the network effects that determine where liquidity and market acceptance concentrate. The design choices over digital money rails and governance also have implications for atomic settlement, continuous liquidity management, embedded compliance, interoperability, and settlement finality. These design choices also raise a fundamental question: whether money remains fungible in digital markets. A tokenized deposit, a stablecoin, and a CBDC may all be denominated in the same fiat currency, but if they sit on separate rails with different issuers, redemption rights, access conditions, and governance, they are not fully interchangeable in practice.

Rails: Stablecoins extend settlement onto private, programmable networks, while CBDCs settle within sovereign monetary systems. The key determinant is whether these rails connect to existing payment systems, liquidity networks, and financial market infrastructure. Hong Kong SAR’s e-CNY/FPS and Project mBridge illustrate that adoption depends on whether a rail becomes usable in real payment and settlement workflows.

Governance: Who sets the rules for identity, compliance, redemption, reserve management, and settlement finality? Stablecoin models rely on issuer-level controls operating within regulatory frameworks, while CBDCs embed governance in public monetary infrastructure. The BIS, Financial Stability Board (FSB), and the GENIUS Act share the same concern: if stablecoins scale as payment/settlement instruments, governance cannot remain solely at the issuer level. It implicates financial stability, prudential supervision, redemption rights, reserve quality, operational resilience, and cross-border regulatory coordination.

Network effects: Where does liquidity, acceptance, and interoperability concentrate? Digital money systems scale through exchanges, payment platforms, and financial market infrastructure. As with earlier offshore dollar markets, once liquidity pools form, they tend to reinforce themselves, making adoption path dependent.

In capital markets, this translates into the question: Which form of digital money becomes the preferred cash leg for tokenized securities, collateral flows, and cross-border settlement?

The cash leg determines where liquidity accumulates, how settlement risk is managed, which regulatory perimeter governs the transaction, and which balance sheets underpin financial activity. A tokenized security market settled in commercial bank money, central bank money, CBDC, or stablecoins will not have the same risk profile. Each model implies a different allocation of credit risk, liquidity risk, operational risk, and public-versus-private control.

Different use cases are likely to favor different forms of digital money. Retail payments, crypto-market settlement, tokenized securities, wholesale foreign exchange, collateral mobility, and cross-border payments may each settle around different forms of digital money. But in each case, the competitive unit will be the same: the settlement network in which that token becomes usable, liquid, compliant, and interoperable.

The next phase will be less about announcements and more about observable adoption. The key issues market participants should watch out for include:

United States: The implementation of the GENIUS Act will test how quickly stablecoin issuers adapt to the new federal framework, whether market structure consolidates around a smaller number of regulated issuers, and how reserve portfolios affect demand for Treasury bills and other short-term instruments.

Hong Kong SAR: The key issue will be whether licensed HKD stablecoin issuers move beyond license approval into live use cases. Early traction in retail payments would matter, but institutional and treasury applications may be more revealing for capital-market relevance.

The Chinese Mainland and Hong Kong SAR: Watch for the expansion of e-CNY beyond wallet top-ups toward cross-boundary trade, merchant, and institutional settlement corridors.

EU: Top of mind is whether legislative and technical work on the digital euro continues to converge on a public-money model framed in terms of sovereignty, privacy, and payments resilience — and whether that project moves from political support into a credible operational alternative to private payment rails.

Finally, banks remain central. The decisive question is whether tokenized deposits progress from pilots to interoperable multi-bank settlement networks, and whether institutional treasury use cases scale faster than stablecoin-based alternatives. More broadly, this will also help determine whether digital money becomes more interoperable over time — or fragments into forms that are not fully fungible in practice.

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