Offshore Renminbi Stablecoin: Opportunities and Challenges

Recently, offshore Renminbi stablecoins are accelerating their emergence. Tech giants have repeatedly lobbied the People's Bank of China to be the first to issue a stablecoin denominated in offshore Renminbi (CNH) in Hong Kong. The governor of the People's Bank of China has also expressed an open attitude toward stablecoins, recognizing that they can significantly shorten the cross-border payment chain, while emphasizing the challenges they pose to financial regulation. Under the policy "ice-breaking," various market participants are eager to act, as the Renminbi stablecoin moves from concept to practical implementation.

1. Background Review

On May 21, the Hong Kong Legislative Council passed the "Stablecoin Ordinance Bill", establishing a licensing system for fiat stablecoin issuers. On May 30, the ordinance officially became law. Subsequently, internet giants responded actively. On June 12, a certain group stated that it would apply for stablecoin licenses in Hong Kong and Singapore, and also planned to seek permission in Luxembourg, primarily to strengthen blockchain operations and support cross-border payment and fund management services. On June 17, another company announced that it would issue a stablecoin in Hong Kong that is pegged 1:1 to the Hong Kong dollar based on a public blockchain.

The Hong Kong "Stablecoin Regulation" will come into effect on August 1, and the Monetary Authority will begin accepting license applications. It is expected that only a single-digit number of stablecoin licenses will be issued, but more than 40 companies are ready to apply, leading to intense competition. Almost all applicants are top Chinese financial institutions and internet giants. The Secretary for Financial Services and the Treasury of Hong Kong stated that the new regulation will provide appropriate supervision for activities related to stablecoins, laying the foundation for the sustainable development of stablecoins and the entire digital asset ecosystem in Hong Kong.

2. Core Discussions and Expert Explanations

Misunderstandings and Definitions of Stablecoins

The prospects and positioning of offshore RMB stablecoins have sparked in-depth discussions. There is a broad consensus that stablecoins essentially belong to the digital mapping of fiat currency and should be included in the existing financial regulatory framework. Experts emphasize that stablecoins, once regulated, are essentially tokens of fiat currency rather than independent currencies, and their development highlights the inefficiencies of the current fiat currency system.

Experts clarify the recent stablecoin craze:

1. Stablecoins are not "blockchain versions of Alipay". Alipay is a third-party payment platform, while stablecoins themselves have value-carrying functions.

2. The Hong Kong dollar cannot be compared to a "USD stablecoin." The two have fundamental differences in legal attributes and governance structures.

3. Stablecoins are not completely "decentralized". They are a highly hybrid structure, with significant centralized features still underlying.

Overall, stablecoins are essentially a mapping of fiat currency on the blockchain, representing a digital expression of credit. They leverage blockchain technology to connect the virtual and real worlds, undertaking functions such as payment and settlement, and possess a strong transitional nature.

Beijing explores the path of stablecoin and RMB internationalization through Hong Kong.

For China, offshore renminbi stablecoins are seen as a new hope for promoting the internationalization of the renminbi. Some viewpoints suggest that Beijing is leveraging Hong Kong as a "regulatory sandbox" to explore the feasibility of stablecoins as alternative payment tools in the future, while also promoting the cross-border use of the renminbi.

Experts emphasize that stablecoins should be seen as a potential component of the cross-border RMB settlement system, expected to synergize with the existing financial infrastructure. However, some analyses point out that the internationalization of the RMB has experienced a noticeable retreat in recent years, reflecting a weakening of international market confidence in China's economic prospects.

RMB stablecoin model's dual-track parallel

Experts suggest adopting a "dual-track approach": on one hand, accelerate the construction of the trading and settlement system for the central bank's digital yuan, and on the other hand, actively explore the development of the renminbi stablecoin in the offshore system, allowing both to work synergistically. Specific recommendations include:

1. In the short term, it can first break through in the offshore market, relying on Hong Kong to pilot the issuance of RMB stablecoin.

2. Focus on specific functions such as cross-border payment, for example, bypassing SWIFT for cross-border settlement and regional cooperation scenarios like the Mainland-Hong Kong "Payment Link".

3. Build the central bank digital currency ( CBDC ) and the "dual-layer architecture" of the RMB stablecoin, allowing licensed stablecoin issuers to open digital RMB reserve accounts at the central bank.

3. Hong Kong Regulatory Attitude: Regulatory Details and Licensing System

The Hong Kong "Stablecoin Regulation" establishes a high-threshold access and continuous supervision system for stablecoin issuance and related activities through a combination of "licensing system + sandbox experiment." The main requirements include:

1. Sufficient reserves and asset security: The circulating stablecoins must be fully backed by equivalent high-liquidity assets.

2. Stability Mechanism and Redemption: The issuer is responsible for maintaining the stability of the coin's value and must establish effective mechanisms to ensure the long-lasting reliability of the stablecoin's pegged exchange rate.

3. Scope of Business Restrictions: If a stablecoin issuer wishes to expand into new businesses, prior approval from the monetary authority must be obtained.

4. Local Entities and Governance: The applicant must be an entity company registered in Hong Kong and have a physical office established in Hong Kong.

5. Anti-Money Laundering and Cross-Border Compliance: Issuers are required to have sufficient capabilities in anti-money laundering ( KYC/AML ).

IV. The Challenge to Dollar Hegemony: What Are the Chances for the Renminbi Stablecoin?

The brewing of offshore RMB stablecoins inevitably has to face the grand proposition of "challenging the dollar hegemony." The industry has conducted comparisons in terms of payment efficiency, institutional credibility, compliance, and cross-border collaboration.

1. Payment efficiency: Stablecoin technology is expected to greatly improve cross-border payment efficiency, but as regulatory standards are established, compliance costs may rise.

2. Institutional Credibility: The US dollar has long been regarded as the most reliable store of value and pricing currency. The RMB stablecoin needs to provide sufficient confidence support in terms of macro policy stability, currency value stability, and convertibility.

3. Compliance and Global Cooperation: The launch of the RMB stablecoin is, to some extent, a "new beginning" outside the existing international financial framework, and its compliance and legal status need to be recognized by regulators in various countries.

4. Network Effects and User Base: US dollar stablecoins have dominated the global cryptocurrency market, while Chinese yuan stablecoins need to rapidly expand their own network.

In summary, the RMB stablecoin is unlikely to shake the dominance of the US dollar in the short term, but its launch has placed a key piece on the chessboard of digital finance. In the long run, whether the RMB stablecoin can challenge the dollar depends on the pace of China’s own financial opening and the international community's confidence in the RMB.

V. Other Potential Challenges of the Renminbi Stablecoin

1. Market Trust: It is necessary to shape credit endorsements on multiple levels, including policy credibility and operational credibility.

2. Impact of the international political environment: Potential suspicion and pressure from countries such as the United States.

In summary, offshore RMB stablecoins carry a new dream for the internationalization of the RMB, while also facing complex realities. From domestic financial security to international currency competition, from technological safety to user cultivation, every step must be taken steadily and methodically. In the coming years, we may see the global monetary system evolve towards a more diversified and balanced direction.