The latest report from The Economist indicates that China is reassessing its strategy in the field of Crypto Assets and stablecoins, and may test the waters for a renminbi stablecoin through Hong Kong, an international financial center. However, behind this financial innovation experiment, there may be a geopolitical irony: the ultimate beneficiary may not be the renminbi, but the US dollar.
Background: The dominance of the US dollar stablecoin, China seeks to break through
Currently, 99% of global stablecoins (totaling over $280 billion) are pegged to the US dollar. The "GENIUS Act" signed by US President Trump in July paves the way for more regulated dollar stablecoins, further solidifying the dollar's dominance in the digital finance space.
China has long sought to weaken the dominance of the US dollar and promote the internationalization of the renminbi. In the first half of this year, over 30% of China's current account transactions were settled in renminbi, up from 15% in 2019.
Hong Kong: A Potential Testing Ground for Renminbi Stablecoins
Unlike mainland China, Hong Kong enjoys free capital flow and actively promotes innovation in virtual assets. The Hong Kong stablecoin regulation, effective August 1, requires issuers to hold at least HKD 25 million in capital, fully backed by secure and liquid assets to support the value of the stablecoin, while also complying with anti-money laundering and auditing standards.
This means that Hong Kong can test stablecoins linked to offshore Renminbi (CNH) in a "regulatory sandbox" and observe their appeal in the international market.
Challenge: Scarcity of Renminbi Assets and Policy Uncertainty
To issue a renminbi stablecoin, there must be sufficient renminbi-denominated assets as support. However, as of the end of July, the total amount of such deposits in Hong Kong was less than 1 trillion renminbi, while in mainland China it exceeded 300 trillion.
Complicating matters, the People's Bank of China sometimes withdraws offshore RMB liquidity to maintain exchange rate stability, resulting in an "unpredictable" supply of related assets. Morgan Stanley warns that this will increase the operational risks of RMB stablecoins.
Reality: China's stablecoin trading volume has exceeded expectations
Despite China's comprehensive ban on Crypto Assets trading in 2021, research from the International Monetary Fund (IMF) shows that stablecoin trading volume in mainland China has far exceeded authorities' expectations.
In 2024, China purchased 18.6 billion dollars in stablecoins from overseas and sold 3.6 billion dollars. Among them, the CEX that cannot be accessed directly in China is one of the main sources.
Geopolitical Satire: The US Dollar May Become the Biggest Winner
The first companies to obtain stablecoin licenses in Hong Kong will almost certainly choose to peg to the Hong Kong Dollar, which has been pegged to the US Dollar since the 1980s.
If the Hong Kong dollar stablecoin succeeds in the international market, it will increase the demand for US dollar assets, forcing the Hong Kong Monetary Authority to buy more US dollars and sell Hong Kong dollars to maintain exchange rate stability.
In other words, Hong Kong's crypto innovation may indirectly strengthen the position of the US dollar, rather than promote the internationalization of the renminbi.
Conclusion
China may use Hong Kong as a testing ground for the renminbi stablecoin, but asset scarcity, policy uncertainty, and market realities could lead to results that are contrary to the original intention of this experiment. The Economist points out that the ultimate winner may still be the US dollar—and those institutions that hold dollar assets.
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The Economist: China may experiment with a renminbi stablecoin, but the US dollar could be the ultimate beneficiary.
The latest report from The Economist indicates that China is reassessing its strategy in the field of Crypto Assets and stablecoins, and may test the waters for a renminbi stablecoin through Hong Kong, an international financial center. However, behind this financial innovation experiment, there may be a geopolitical irony: the ultimate beneficiary may not be the renminbi, but the US dollar.
Background: The dominance of the US dollar stablecoin, China seeks to break through
Currently, 99% of global stablecoins (totaling over $280 billion) are pegged to the US dollar. The "GENIUS Act" signed by US President Trump in July paves the way for more regulated dollar stablecoins, further solidifying the dollar's dominance in the digital finance space.
China has long sought to weaken the dominance of the US dollar and promote the internationalization of the renminbi. In the first half of this year, over 30% of China's current account transactions were settled in renminbi, up from 15% in 2019.
Hong Kong: A Potential Testing Ground for Renminbi Stablecoins
Unlike mainland China, Hong Kong enjoys free capital flow and actively promotes innovation in virtual assets. The Hong Kong stablecoin regulation, effective August 1, requires issuers to hold at least HKD 25 million in capital, fully backed by secure and liquid assets to support the value of the stablecoin, while also complying with anti-money laundering and auditing standards.
This means that Hong Kong can test stablecoins linked to offshore Renminbi (CNH) in a "regulatory sandbox" and observe their appeal in the international market.
Challenge: Scarcity of Renminbi Assets and Policy Uncertainty
To issue a renminbi stablecoin, there must be sufficient renminbi-denominated assets as support. However, as of the end of July, the total amount of such deposits in Hong Kong was less than 1 trillion renminbi, while in mainland China it exceeded 300 trillion.
Complicating matters, the People's Bank of China sometimes withdraws offshore RMB liquidity to maintain exchange rate stability, resulting in an "unpredictable" supply of related assets. Morgan Stanley warns that this will increase the operational risks of RMB stablecoins.
Reality: China's stablecoin trading volume has exceeded expectations
Despite China's comprehensive ban on Crypto Assets trading in 2021, research from the International Monetary Fund (IMF) shows that stablecoin trading volume in mainland China has far exceeded authorities' expectations.
In 2024, China purchased 18.6 billion dollars in stablecoins from overseas and sold 3.6 billion dollars. Among them, the CEX that cannot be accessed directly in China is one of the main sources.
Geopolitical Satire: The US Dollar May Become the Biggest Winner
The first companies to obtain stablecoin licenses in Hong Kong will almost certainly choose to peg to the Hong Kong Dollar, which has been pegged to the US Dollar since the 1980s.
If the Hong Kong dollar stablecoin succeeds in the international market, it will increase the demand for US dollar assets, forcing the Hong Kong Monetary Authority to buy more US dollars and sell Hong Kong dollars to maintain exchange rate stability.
In other words, Hong Kong's crypto innovation may indirectly strengthen the position of the US dollar, rather than promote the internationalization of the renminbi.
Conclusion
China may use Hong Kong as a testing ground for the renminbi stablecoin, but asset scarcity, policy uncertainty, and market realities could lead to results that are contrary to the original intention of this experiment. The Economist points out that the ultimate winner may still be the US dollar—and those institutions that hold dollar assets.