The Battle of Stablecoins between China and the US: Can Hong Kong's Push for an Offshore Renminbi Stablecoin Challenge the Dollar's Hegemony?

Recently, a series of dynamics indicate that offshore Renminbi stablecoins are accelerating their emergence. According to Reuters, mainland tech giants JD Group and Ant Group have repeatedly lobbied the People's Bank of China to strive for the first issuance of a stablecoin denominated in offshore Renminbi (CNH) in Hong Kong. Compared to the previous cautious attitude towards Crypto Assets, the Governor of the People's Bank of China, Pan Gongsheng, has also expressed the central bank's open stance on issues such as stablecoins, recognizing that they can significantly shorten the cross-border payment chain through "payment as settlement," while also emphasizing the immense challenges brought by financial regulation. Under the policy "ice-breaking," market participants are eager to act, and the Renminbi stablecoin is moving from conception to practical implementation.

1. Regulatory Process of Hong Kong Stablecoin and Market Enthusiasm

According to a report by Yicai, on May 21, the Hong Kong Legislative Council passed the "Stablecoin Bill" to establish a licensing system for the issuance of fiat stablecoins in Hong Kong; on May 30, the Hong Kong Special Administrative Region government published the "Stablecoin Bill" in the official gazette, meaning the "Stablecoin Bill" has officially become law. Subsequently, two internet giants actively responded. On June 12, Ant Group announced that it would apply for a stablecoin license in Hong Kong and Singapore, and plans to seek permission in Luxembourg, mainly to strengthen its blockchain business in the future and support its cross-border payment and fund management services. On June 17, JD.com also stated that it would issue a stablecoin pegged to the Hong Kong dollar 1:1 based on a public blockchain in Hong Kong.

In line with corporate actions, the regulatory authorities in Hong Kong have rapidly advanced. The Hong Kong "Stablecoin Regulation" was officially passed in the Legislative Council at the end of May this year and will take effect on August 1. According to the regulation, the Hong Kong Monetary Authority will begin accepting license applications. Stablecoin licenses are scarce and are expected to be issued in single digits, but more than 40 companies are currently preparing to apply, with law firms reporting that dozens more are interested, leading to fierce competition. The applicants are almost exclusively major Chinese financial institutions and internet giants, including JD.com, Standard Chartered, Circle, Ant International, Ant Technology, etc. Some small and medium-sized enterprises face high barriers to entry, making their chances of applying slim, and there have even been instances of companies riding the concept to hype their stock prices. The Secretary for Financial Services and the Treasury, Christopher Hui, stated that the licensing system established by the new regulation will provide appropriate supervision for stablecoin-related activities, laying the foundation for the sustainable development of stablecoins and the entire digital asset ecosystem in Hong Kong. This initiative can be seen as a milestone in promoting Hong Kong's status as an international financial center.

2. The Nature and Misunderstandings of Stablecoins

The prospects and positioning of offshore RMB stablecoins have sparked in-depth discussions among regulatory officials, financial scholars, and market participants. From a regulatory perspective, there is a consensus that stablecoins essentially represent a digital mapping of fiat currency and should be incorporated into the existing financial regulatory framework. Former Vice President of the Bank of China, Wang Yongli, emphasized that stablecoins, once regulated, are essentially tokens of fiat currency, rather than independent currencies. Their development highlights the inefficiencies present in the current fiat currency system, and countries should learn from their technology to enhance the cross-border payment capabilities of fiat currencies. He pointed out that the United States, Hong Kong, and other regions have recently accelerated stablecoin legislation, requiring licensed operations, 100% reserves, and prohibiting interest payments, which effectively strengthens the centralized nature of stablecoins and weakens decentralization risks, bringing them closer to traditional financial regulatory domains.

The Vice President and Secretary of the Shanghai Development Research Foundation, Joyde, made a clarification regarding the recent craze for stablecoins:

Misunderstanding 1: Stablecoins are "the blockchain version of Alipay." Alipay is a third-party payment platform that does not have monetary attributes, while stablecoins are different as they inherently possess value-carrying functions.

Misunderstanding 2: The Hong Kong Dollar is analogous to the "US Dollar stablecoin." The Hong Kong Dollar is the legal tender of Hong Kong, regulated by the Monetary Authority, while the US Dollar stablecoin is primarily issued by private companies, with reserve asset returns being privately owned by the issuer.

Misunderstanding 3: Stablecoins are "decentralized". In reality, stablecoins are a highly hybrid structure, with their underlying characteristics still exhibiting significant centralization, serving as a "credit intermediary" under the support of technology.

Overall, stablecoins are essentially a mapping of fiat currency on the blockchain, representing a digital expression of credit. They utilize blockchain technology to connect the virtual and real worlds, undertaking functions such as payment and settlement, and have a strong transitional nature. From the perspective of financial development history, the popularity of stablecoins is, to some extent, a response to the inability of decentralized currencies like Bitcoin to fulfill the functions of everyday currency—decentralized ideals face real-world challenges, leading the market to "return" to traditional currency systems. This phenomenon precisely confirms that fiat currencies still possess strong vitality and stability within the current financial system.

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

For China, the offshore renminbi stablecoin is seen as a new hope for promoting the internationalization of the renminbi. Morgan Stanley pointed out in its latest research report that as the United States advances stablecoin legislation, it may further strengthen the dominance of the dollar in the global financial system. In this context, Beijing's attention to stablecoins has significantly increased, and it is using Hong Kong as a "regulatory sandbox" to explore its feasibility as a potential alternative payment tool while promoting the cross-border use of the renminbi.

Former Governor of the People's Bank of China Zhou Xiaochuan recently mentioned the issue of stablecoins in a public forum, pointing out that the widespread use of dollar stablecoins may exacerbate the global trend of "dollarization," which deserves high vigilance. Morgan Stanley agrees with this, further stating that the rise of stablecoins does not mean that the international monetary system will enter a new phase of "supranational currency." It emphasizes that the essence of stablecoins remains an extension of traditional fiat currency under the existing regulatory framework, with its core role being to enhance the efficiency of cross-border payments and transactions, rather than replacing existing sovereign currencies. Li Yang, chairman of the National Financial and Development Laboratory, also agrees with this perspective and adds that China should take proactive steps in the field of stablecoins, promoting the internationalization of the digital yuan (e-CNY), and using Hong Kong to develop a renminbi stablecoin to enhance the international status of the renminbi.

When discussing the development path of the Renminbi stablecoin, Morgan Stanley pointed out that it should be viewed as a potential component of the cross-border Renminbi settlement system, and it is expected to form synergies with existing financial infrastructure, including Renminbi swap agreements, CIPS (Cross-border Interbank Payment System for Renminbi), and the global Renminbi clearing service network.

4. The Dual-Track Parallel of the RMB Stablecoin Model and Its Potential Challenges

Li Yang specifically mentioned that the United States is actively promoting legislation for stablecoins, with the aim of serving the national interests of the dollar: including modernizing the dollar payment system, consolidating the international dominance of the dollar, and creating trillions of dollars in new demand for U.S. Treasury bonds. He urged China to come up with countermeasures as soon as possible, achieving breakthroughs through a "dual-track" approach: on one hand, accelerating the construction of the central bank's digital renminbi transaction settlement system, and on the other hand, actively exploring the development of renminbi stablecoins in the offshore system, enabling both to work synergistically. This "dual-track" idea has also been echoed by several experts.

Joyde, the Vice President of the Shanghai Development Research Foundation, believes that in the face of the stablecoin wave, China needs to distinguish between short-term and long-term, domestic and overseas strategies: in the short term, it can first break through from the offshore market, relying on Hong Kong as an international financial center to pilot the issuance of the RMB stablecoin; once conditions mature, it will reassess whether and how to promote it domestically. He emphasized that the RMB stablecoin should focus on specific functions such as cross-border payments, for example, bypassing SWIFT for cross-border settlements and regional cooperation scenarios like the Mainland-Hong Kong "Payment Link," leveraging advantages in these areas to coordinate a "dual-track" approach with the central bank's digital RMB and jointly promote the internationalization of the RMB.

In the design of stablecoin models, Xiao Feng, Chairman of HashKey Group, suggested constructing a "dual-layer architecture" for central bank digital currency (CBDC) and the Renminbi stablecoin. This design combines the achievements of the central bank in the research and development of the digital Renminbi with the innovative forces of market institutions, allowing the central bank digital currency to undertake wholesale functions, with stablecoins used for cross-border and retail payments, thereby significantly accelerating the cross-border circulation and internationalization process of the Renminbi.

Potential challenges of the Renminbi stablecoin:

Market Trust: To win the trust similar to that of the US dollar stablecoin, the Renminbi stablecoin needs to provide sufficient confidence support from China in terms of macro policy stability, Renminbi value stability, and convertibility.

Impact of the International Political Environment: As an innovation aimed at challenging the dominance of the US dollar, the Renminbi stablecoin is inevitably influenced by international games. The United States may be wary of it and may suppress it through various means.

V. The Regulatory Attitude of Hong Kong: Ordinance Details and Licensing System

As an offshore RMB stablecoin trial ground, Hong Kong's regulatory system design and implementation progress are highly anticipated. The "Stablecoin Ordinance" establishes a high-threshold access and ongoing regulatory system for stablecoin issuance and related activities through a combination of a "licensing system + sandbox experimentation". After the ordinance was passed, the Hong Kong Monetary Authority launched the "Stablecoin Issuer Sandbox" program in March this year, inviting interested institutions to conduct pilot projects under regulatory guidance, allowing the regulatory body to convey expectations and gather industry feedback in preparation for the formal implementation of the system.

Regulatory requirements include:

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

Stabilization Mechanism and Redemption: The issuer is responsible for maintaining the stability of the coin's value, and holders have the right to redeem the stablecoin at the pegged price.

Scope of business restrictions: If a stablecoin issuer expands into new business, it must obtain prior approval from the Financial Supervisory Commission.

Local Entities and Governance: Applicants must be entities registered in Hong Kong, and the primary management team should be based in Hong Kong.

Anti-Money Laundering and Cross-Border Compliance: The President of the Hong Kong Monetary Authority, Eddie Yue, emphasized that the anonymity and cross-border circulation characteristics of stablecoins pose risks and challenges related to money laundering and terrorist financing.

Conclusion:

The offshore Renminbi stablecoin carries a new dream of Renminbi internationalization, while also facing the complex challenges of reality. From domestic financial security to international currency games, from technical security to user cultivation, every step must be taken steadily and methodically. The emergence of the Renminbi stablecoin does not mean that it aims to shake the hegemony of the US dollar overnight; rather, it resembles the beginning of a protracted battle—in the vast realm of the digital economy and emerging markets, the Renminbi will strive for greater usage and recognition through this new vehicle of stablecoin. In the coming years, we may not see the status of the US dollar being replaced, but we might witness the gradual rewriting of the dominance of the US dollar: various fiat stablecoins such as the US dollar, euro, and Renminbi will coexist and compete, evolving the global monetary system towards a more diversified and balanced direction.