Opportunities and Challenges of the Renminbi Stablecoin

Recently, the development of offshore renminbi stablecoins is accelerating. Several tech giants and financial institutions are actively seeking to issue stablecoins denominated in offshore renminbi in Hong Kong. This trend has sparked extensive discussions among regulators, scholars, and market participants, covering various aspects such as the definition of stablecoins, regulatory frameworks, development paths, and the impact on the internationalization of the renminbi.

Event Review

Hong Kong passed the "Stablecoin Ordinance" at the end of May, which will take effect on August 1. Subsequently, several companies actively responded. Ant Group stated that it will apply for a stablecoin license in Hong Kong and Singapore, while JD.com also announced plans to issue a stablecoin pegged 1:1 to the Hong Kong dollar. Meanwhile, the U.S. Senate passed the first stablecoin regulatory framework bill.

The Hong Kong regulators are rapidly advancing relevant work and are expected to issue a single-digit number of stablecoin licenses. Currently, more than 40 companies are preparing to apply, primarily consisting of leading Chinese financial institutions and internet giants. The Secretary for Financial Services and the Treasury, Christopher Hui, stated that the new regulations will lay the foundation for the sustainable development of stablecoins in Hong Kong and the entire digital asset ecosystem.

Core Discussion

Definition and Misunderstanding of Stablecoin

Joyde, the vice president and secretary of the Shanghai Development Research Foundation, pointed out three common misconceptions about stablecoins:

1. It is inaccurate to compare stablecoins to "blockchain version of Alipay." Stablecoins themselves have the function of value storage, rather than merely serving as a channel for funds.

2. The Hong Kong dollar should not be regarded as a "US dollar stablecoin". There are fundamental differences in legal attributes and governance structures between the two.

3. Stablecoins are not completely decentralized. Their underlying mechanisms still have significant centralized features, such as issuance mechanisms and audits.

Stablecoins are essentially a representation of fiat currency on the blockchain, serving as a digital expression of credit. They utilize blockchain technology to connect the virtual and real worlds, taking on functions such as payment and settlement.

New Path for RMB Internationalization

For China, offshore RMB stablecoins are seen as a new hope for promoting the internationalization of the RMB. Morgan Stanley believes that Beijing is using Hong Kong as a "regulatory sandbox" to explore the feasibility of stablecoins as a future alternative payment tool while promoting the cross-border use of the RMB.

Multiple experts suggest adopting a "dual-track parallel" strategy: on one hand, accelerate the construction of the central bank's digital Renminbi transaction settlement system, and on the other hand, actively explore the development of Renminbi stablecoins in the offshore system. In the short term, breakthroughs can first be made in the offshore market, relying on Hong Kong to pilot the issuance of Renminbi stablecoins; once conditions are ripe, reassess whether and how to promote it domestically.

Hong Kong regulatory attitude

Hong Kong adopts a combination of "licensing system + sandbox experiment" to establish a high-threshold access and ongoing regulatory system for stablecoin issuance and related activities. The main requirements include:

1. Sufficient reserves and asset security
2. Stability Mechanism and Redemption
3. Scope of Business Limitations
4. Local Entities and Governance
5. Anti-Money Laundering and Cross-Border Compliance

The Hong Kong regulators emphasize that stablecoins are not speculative tools, but rather a payment method based on blockchain technology. They hope to reserve space for the development of emerging industries while preventing financial risks.

The Possibility of Challenging the Dollar's Hegemony

The renminbi stablecoin needs to challenge the dollar's dominance by competing with the dollar stablecoin in the following areas:

1. Payment Efficiency: Stablecoin technology can significantly improve the efficiency of cross-border payments, but with the normalization of regulations, compliance costs may increase.

2. System Credibility: The Renminbi stablecoin needs to provide sufficient confidence support in terms of macro policy stability, currency value stability, and convertibility.

3. Compliance and Global Collaboration: A Hong Kong license may provide an international springboard for the renminbi stablecoin, helping it to "go global".

4. Network Effects and User Base: The RMB stablecoin needs to rapidly expand its network, taking the lead in promoting itself in areas such as cross-border e-commerce and supply chain finance.

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

Other Potential Challenges

1. Market Trust: It is necessary to shape multi-faceted credit endorsement, including policy credibility and operational credibility.

2. Impact of the international political environment: Possible suppression and sanctions from countries such as the United States.

The offshore RMB stablecoin carries a new dream for the internationalization of the RMB, while also facing complex real-world challenges. In the future, we may see the coexistence and competition of multiple fiat stablecoins such as the US dollar, euro, and RMB, as the global monetary system evolves towards a more diversified and balanced direction.