Stablecoin Game between China and the United States: How can Hong Kong become a strategic fulcrum for the digitalization of the RMB?

Author: Aki Chen, Wu Blockchain

Recently, a series of dynamics indicate that offshore RMB stablecoins are accelerating their debut: According to Reuters, mainland technology giants JD.com and Ant Group have repeatedly lobbied the People's Bank of China to be the first to issue stablecoins denominated in offshore RMB (CNH) in Hong Kong. Compared with the previous conservative and cautious attitude towards cryptocurrencies, Pan Gongsheng, governor of the People's Bank of China, also expressed the central government's open attitude towards stablecoins on issues such as stablecoins. He not only recognized that it can achieve "payment is settlement" to greatly shorten the cross-border payment chain, but also emphasized the huge challenges it brings to financial supervision. Previously, Guotai Junan International was approved by the Hong Kong Securities and Futures Commission to upgrade the virtual asset trading camera, and its stock price soared, which was also considered a signal that the "national team" entered the crypto industry. Under the policy "ice-breaking", all parties in the market are ready to go, and the RMB stablecoin is moving from conception to implementation.

1. Event Review

According to China Business News, on May 21, the Legislative Council of Hong Kong passed the Stablecoin Bill to establish a licensing system for issuers of legal currency stablecoins in Hong Kong; on May 30, the Hong Kong Special Administrative Region Government published the Stablecoin Ordinance in the Gazette, which means that the Stablecoin Ordinance has officially become a law. Subsequently, the two Internet giants responded positively. On June 12, Ant Group said it would apply for stablecoin licenses in Hong Kong, China and Singapore, and also intends to seek a license in Luxembourg, mainly to strengthen blockchain business in the future and provide support for its cross-border payment and fund management services. Involving two of its companies, one is Ant International, headquartered in Singapore, and the other is Ant Digital Technologies, whose overseas headquarters is located in Hong Kong, China. On June 17, JD.com also said that it would issue a stablecoin based on a public blockchain and pegged to the Hong Kong dollar 1:1 in Hong Kong, China. After completing the B-end payment, it will penetrate into the C-end payment. It is worth noting that the US Senate also passed a stablecoin "Genius Act" on the same day, which is regarded as the first bill in the United States to establish a regulatory framework for "stablecoins" and cannot fill the regulatory gap in this field. Echoing the actions of enterprises is the rapid advancement of Hong Kong regulators. The Hong Kong Stablecoin Ordinance was formally passed by the Legislative Council at the end of May this year and will take effect on August 1. According to the ordinance, the Hong Kong Monetary Authority will open license applications. Stablecoin licenses are scarce and are expected to be issued in the single digits, but more than 40 companies are currently preparing to apply, and law firms have reported that there are dozens of companies that are interested, and the competition is fierce. Applicants are almost all Chinese leading financial institutions and Internet giants, including JD.com, Standard Chartered, Yuanbi, Ant International, Ant Digital Technology, etc. Some small and medium-sized enterprises have little chance of applying due to high thresholds, and even some companies have used concepts to speculate on stock prices. Hong Kong Financial Services and the Treasury Bureau Director Xu Zhengyu said that the licensing system established by the new ordinance will provide appropriate supervision for stablecoin-related activities, lay the foundation for the sustainable development of Hong Kong's stablecoins and even the entire digital asset ecosystem, and this move can be seen as a milestone in promoting Hong Kong's status as an international financial center.

2. Core Discussion and Expert Explanation

Misunderstandings and definitions of stablecoins

The prospects and positioning of offshore RMB stablecoins have triggered in-depth discussions among senior regulators, financial scholars and market participants. From a regulatory perspective, the consensus among multiple parties is that stablecoins are essentially digital mappings of legal tender and should be included in the existing financial regulatory system. Former Vice President of the Bank of China Wang Yongli emphasized that stablecoins are essentially tokens of legal tender, rather than independent currencies, after being included in the regulation. Their development highlights the inefficiency of the existing legal tender system, and countries should learn from their technology to improve the cross-border payment capabilities of legal tender. He pointed out that the United States, Hong Kong and other countries have recently accelerated the legislation of stablecoins, requiring licensed operations, 100% reserves, and prohibiting interest payments. These measures have essentially strengthened the centralized nature of stablecoins, weakened the risk of decentralization, and brought them closer to the scope of traditional financial regulation. Here, Joey, Vice President and Secretary of the Shanghai Development Research Foundation, clarified the recent craze for stablecoins:

The first common misunderstanding is to compare stablecoins to "blockchain version of Alipay". This statement is not accurate in essence. Alipay is a third-party payment platform and does not have currency attributes. The funds transferred in the transaction are still stored in the user's bank account. Stablecoins are different. They have the function of carrying value, although their main purpose is also payment. In the transaction process, stablecoins directly represent the user's assets rather than just serving as a "channel" for funds.

The second misunderstanding is to compare the Hong Kong dollar to the "US dollar stablecoin". On the surface, there are certain similarities between the two in the anchoring mechanism - the issuance of the Hong Kong dollar is 100% collateralized by the US dollar. However, from the perspective of legal attributes and governance structure, there are fundamental differences between the two. The Hong Kong dollar is the legal currency of Hong Kong and is regulated by the HKMA through the linked exchange rate system. Its issuance rights are in the hands of the three major note-issuing banks, HSBC, Bank of China and Standard Chartered. The income from the issuance of notes belongs to the Hong Kong Exchange Fund and serves the public interest. The US dollar stablecoin represented by USDT is issued by private companies, and the income from reserve assets is privately owned by the issuer. Taking Tether as an example, its annual profit in 2023 has exceeded 10 billion US dollars, and there are obvious differences in the governance and public nature of its stablecoin.

The third misunderstanding is that stablecoins are "decentralized". In fact, stablecoins are a highly hybrid structure, and their underlying structure still has significant centralized characteristics. Its peg to fiat currency means that the issuance mechanism needs to rely on centralized entities to manage reserves and redemption; at the same time, the depository arrangements and audit mechanisms of stablecoins are mostly controlled by centralized institutions. In comparison, its trading and circulation levels are more reflected in the decentralized characteristics of the chain. Therefore, stablecoins are neither completely centralized nor completely decentralized. A more accurate statement is: they are "credit intermediaries" supported by technology.

In general, stablecoins are essentially on-chain mappings of fiat currencies and a digital expression of credit. They use blockchain technology to connect the virtual and real worlds, undertake payment and settlement functions, 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 such as Bitcoin to assume daily monetary functions — the decentralized ideal encounters a reality landing dilemma, causing the market to "return" to the traditional monetary system. This phenomenon just proves that legal tender still has extremely strong vitality and stability in the current financial system.

Beijing uses Hong Kong to explore stablecoins and RMB internationalization

For China, offshore RMB stablecoins are given new hope to promote the internationalization of the RMB. Morgan Stanley pointed out in its latest research report that as the United States advances stablecoin legislation, it may further consolidate the dollar's dominant position in the global financial system. Against this background, Beijing's attention to stablecoins has significantly increased, and it is using Hong Kong as a "regulatory sandbox" to explore its feasibility as an alternative payment tool in the future, while promoting the cross-border use of the RMB.

Zhou Xiaochuan, former governor of the People's Bank of China, also mentioned the issue of stablecoins in public recently, and pointed out that the widespread use of US dollar stablecoins may exacerbate the global "dollarization" trend, which deserves high vigilance. Morgan Stanley agrees with this and further points out that the rise of stablecoins does not mean that the international monetary system will usher in a new stage of "super-sovereign currency". It emphasizes that the essence of stablecoins is still an extension of traditional legal currency under the existing regulatory system, and its core role is to improve the efficiency of cross-border payments and transactions, rather than replace the existing sovereign currency. Li Yang, chairman of the National Financial and Development Laboratory, also agrees with this view, and added that China should take active actions in the field of stablecoins, promote the internationalization of the digital RMB (e-CNY), and use Hong Kong to develop RMB stablecoins to enhance the international status of the RMB. He emphasized that it is necessary to keep in mind that as long as sovereign states still exist, the sovereign attributes of currency will not change. Monetary sovereignty is an important part of national sovereignty and is the highest power of each country to issue and manage its own currency in its own country. No matter how its technical path evolves, stablecoins cannot bypass the exchange supervision and capital flow restrictions between currencies of various countries in international payments.

When talking about the development path of RMB stablecoin, Morgan Stanley pointed out that it should be regarded as a potential component of the cross-border RMB settlement system, and is expected to form synergy with existing financial infrastructure, including RMB swap agreements, CIPS (Cross-border RMB Interbank Payment System) and the global RMB clearing service network. Morgan Stanley pointed out in the report that the internationalization of RMB has retreated significantly in the past three years. Its share in the global reserve currency system has dropped from 2.8% at the beginning of 2022 to 2.2% at the end of 2024. The bank believes that this trend reflects the weakening confidence of the international market in China's economic prospects and the weakening of capital liquidity. The main reason for the setback of RMB internationalization is the continued concern of the outside world about the "triple challenges" facing China - high leverage debt, deflationary pressure and demographic changes. These structural problems have weakened the market's attractiveness to RMB assets and, to a certain extent, restricted the further expansion of RMB in international transactions and reserves.

The dual-track parallel model of RMB stablecoin

Li Yang specifically mentioned that the United States is actively promoting stablecoin legislation, with the aim of serving the national interests of the US dollar: including promoting the modernization of the US dollar payment system, consolidating the international dominance of the US dollar, and creating trillions of dollars in new demand for US Treasury bonds, because the latest stablecoin bill requires full anchoring with US dollars or US Treasury bonds (US bonds) as reserve assets. This means that stablecoin issuers either deposit US dollars in bank accounts or directly purchase US bonds. According to the current financial system arrangements, non-US government entities (such as stablecoin companies) holding US bonds usually do not receive interest returns. From this perspective, stablecoins provide a new mechanism for "interest-free resolution" of US bonds: if the stablecoin market continues to expand and issuers continue to increase their holdings of US bonds as reserves, the market demand for US bonds will be further increased unknowingly, and the government does not need to pay additional interest costs, forming a "silent resolution" in a sense. Of course, the reality is often more complicated and severe. On the one hand, the total amount of US debt is huge, and even if stablecoins grow rapidly, it will still be difficult to shake its overall stock in the short term; on the other hand, the issuance of stablecoins is still subject to multiple restrictions such as compliance, demand and macro policies.

The stablecoin mechanism cleverly transforms the expansion of the crypto market into an extension of the dollar's influence on the chain. Therefore, he called on China to come up with a response plan as soon as possible and achieve a breakthrough through "two-track parallel progress": on the one hand, accelerate the construction of the transaction and settlement system of the central bank's digital RMB, and on the other hand, actively explore the development of RMB stablecoins in the offshore system, so that the two can work together. This "two-track" idea has also been echoed by many experts. Qiao Yide, vice president of the Shanghai Development Research Foundation, believes that in the face of the wave of stablecoins, China needs to distinguish between short-term and long-term, domestic and overseas strategies: in the short term, it can first break through the offshore market and rely on Hong Kong, an international financial center, to pilot the issuance of RMB stablecoins; when conditions are ripe, it will be evaluated whether and how to promote it domestically. He emphasized that RMB stablecoins should focus on specific functions such as cross-border payments, such as bypassing SWIFT's cross-border settlement and regional collaboration scenarios such as the mainland-Hong Kong "Payment Pass", play to their advantages in these areas, and form a "dual track" coordination at home and abroad with the central bank's digital RMB to jointly promote the internationalization of the RMB.

In terms of stablecoin model design, scholars and practitioners in the industry have also provided constructive ideas. Xiao Feng, chairman of HashKey Group, suggested that a "two-tier architecture" of central bank digital currency (CBDC) and RMB stablecoin could be constructed. The specific approach is to allow licensed stablecoin issuers to open digital RMB reserve accounts at the central bank, and use central bank digital currency as wholesale funds to issue RMB stablecoins for retail and cross-border purposes in the form of on-chain tokens. This design combines the central bank's achievements in the research and development of digital RMB with the innovative power of market institutions, allowing central bank digital currency to assume wholesale functions and stablecoins to be used for cross-border and retail payments, thereby greatly accelerating the cross-border circulation and internationalization of RMB. In Xiao Feng's view, stablecoins truly solve the "last mile" problem in inclusive finance, and their core value lies in improving the availability of financial services. Mainstream stablecoins represented by USDC (USD Coin) and USDT (Tether) are broadening the boundaries of the traditional financial system and providing efficient and low-threshold payment and settlement methods for people who cannot easily access the banking system. He believes that stablecoins and tokenization technology will profoundly change the operating logic of the global financial market: "Ten years later, stablecoins will promote tokenization to become a mainstream payment and settlement tool, and eventually replace traditional financial infrastructure. The trend of 'good money drives out bad money' is irreversible because stablecoins are more efficient, lower cost, simpler in structure, and support 24/7 all-weather trading."

Therefore, Xiao Feng said: "As China's international financial center, Hong Kong must keep up with or even lead the development trend of stablecoins. Hong Kong launched the Stablecoin Ordinance, taking the lead in completing the stablecoin legislative process globally, ahead of the United States, marking an important step in the construction of the global stablecoin system. The ordinance not only has significant positive significance for Hong Kong's local financial technology ecosystem, but is also seen as an important boost to the internationalization of the RMB. In this process, Hong Kong can serve as a "test field" for China to develop stablecoins. Through the model of trial and error, it can accumulate experience in institutional design, market operation, risk prevention and control, etc., promptly identify problems and improve mechanisms, and lay a policy and practical foundation for the wider promotion of stablecoins in the mainland in the future. After the Hong Kong stablecoin pilot is relatively mature, it can be considered to connect offshore RMB stablecoins through free trade accounts (FT) in specific areas of the mainland, such as Hainan Free Trade Port, Guangdong-Hong Kong-Macao Greater Bay Area, and Shanghai Free Trade Port.

3. Hong Kong’s regulatory attitude: Ordinance details and licensing system

As the preferred testing ground for offshore RMB stablecoins, the design and implementation of Hong Kong's regulatory system have attracted much attention. The Stablecoin Ordinance combines a "licensing system + sandbox trial" to establish a high-threshold access and continuous regulatory system for the issuance of stablecoins and related activities. After the passage of the ordinance, the Hong Kong Monetary Authority took the lead in launching the "Stablecoin Issuer Sandbox" program in March this year, inviting institutions interested in participating to conduct pilot projects under regulatory guidance so that the regulatory authorities can convey their expectations and collect feedback from the industry to prepare for the implementation of the formal system. This sandbox mechanism shows the pragmatic side of Hong Kong's supervision: testing before the completion of legislation, strengthening communication with the market, and ensuring that the new regulations are more stable and feasible when implemented. According to the ordinance and supporting guidelines, anyone engaged in the issuance or related activities of stablecoins anchored to legal currencies in Hong Kong must obtain a license issued by the HKMA. The scope of supervision covers the issuance, management and active promotion of stablecoins. Licensed institutions must strictly comply with various requirements, including but not limited to:

1. Adequate reserves and asset security: Stablecoins in circulation must be fully backed by equivalent highly liquid assets. Reserve assets must be consistent with the anchor currency (special circumstances require approval), and can be low-risk assets such as cash and bank deposits, and stored separately from the issuer's own funds, and the rights and interests of holders are protected through trusts and other structures. Issuers should establish a sound reserve management and risk control mechanism, and have independent audits verify the adequacy of reserves every month and disclose information such as the size and composition of reserves to the public.

2. Stabilization mechanism and redemption: The issuer is responsible for maintaining currency stability and must establish an effective mechanism to ensure the long-term reliability of the stablecoin anchor exchange rate. Holders have the right to redeem stablecoins at the anchor price. Under normal circumstances, redemption should be completed within T+0 to T+1 days, and no inappropriately high fees or unreasonable conditions may be charged. This provision guarantees users' expectations of the liquidity of stablecoins and prevents runs and liquidity risks.

3. Business scope restrictions: If a stablecoin issuer expands new business, it must obtain approval from the HKMA in advance and prove that it has sufficient resources and that the new business will not pose a significant risk to its stablecoin issuance responsibilities. This will prevent the issuer from endangering the stable operation of the stablecoin by engaging in high-risk businesses.

4. Local entity and governance: The applicant must be a physical company incorporated in Hong Kong and have a physical office in Hong Kong. Key management (such as CEO, senior executives and directors) should be based in Hong Kong to facilitate direct supervision by regulators. In addition, the issuer must meet the minimum capital requirement, which is proposed to be no less than HK$25 million or 1% of the par value of the circulating stablecoin (the higher of the two). The senior management team must have sufficient knowledge and experience in the relevant field, and any changes in control and management must be approved by the regulator in advance.

5. Anti-money laundering and cross-border compliance: Eddie Yue, Chief Executive of the Hong Kong Monetary Authority, emphasized that the anonymity and cross-border circulation of stablecoins will bring about risks and challenges such as money laundering and terrorist financing, requiring issuers to have sufficient capabilities in anti-money laundering (KYC/AML). If the stablecoin business involves other jurisdictions, the applicant must develop a complete cross-border compliance plan to ensure that it and its partners hold the required licenses in the relevant regions and comply with local laws and regulations. In the future, Hong Kong will also strengthen cross-border regulatory cooperation through international platforms such as the Financial Stability Board of the Group of Twenty (G20) to promote the healthy and orderly development of stablecoin activities around the world.

Hong Kong regulators are clearly aware that stablecoins are both an innovation opportunity and a potential risk. Hong Kong Legislative Council member Wu Jiezhuang "cooled down" the market, emphasizing that stablecoins are not a speculative tool, but a means of payment based on blockchain technology, which does not have room for appreciation. As an international financial center that has formulated a stablecoin regulatory system earlier, Hong Kong hopes to reserve development space for emerging formats on the premise of preventing financial risks. On the one hand, it is necessary to seize the opportunity and make Hong Kong a "global model" for the compliance of stablecoins, and help the digital cross-border use of legal currencies such as the RMB; on the other hand, it is also necessary to closely monitor potential risks to ensure that "once a problem occurs, the regulatory and legal framework can play a role."

At present, all parties in Hong Kong have shown unprecedented enthusiasm and rationality towards stablecoins: the government has publicly expressed its support for the development of compliant stablecoins in Hong Kong through policy declarations, and encouraged the public and private sectors to jointly explore the feasibility of using licensed stablecoins in scenarios such as government payments and cross-border trade; the Legislative Council has intensively followed up on the implementation details of the ordinance to ensure the smooth passage of the two announcements supporting the ordinance (including the definition of professional investors); the Hong Kong financial community also sees this as a new opportunity to consolidate Hong Kong's international financial center.

4. Challenges to US dollar hegemony: What are the chances of success for the RMB stablecoin?

The development of offshore RMB stablecoins inevitably faces the grand proposition of "challenging the hegemony of the US dollar". The US dollar has long monopolized the core position of the global financial and payment system, even in the crypto world: the top ten stablecoins by market value are almost all anchored to the US dollar, with a total size of about US$258 billion, making the US dollar the default settlement layer in the field of digital assets. The share of RMB in traditional cross-border payments is less than 3%. Can the emerging RMB stablecoin shake this pattern? The industry has made comparisons in terms of payment efficiency, institutional credit, compliance and cross-border collaboration.

Payment efficiency

There are pain points in the field of cross-border payments. Traditional wire transfers have long paths, high costs, and slow speeds. Stablecoin technology is expected to greatly improve this situation. Xiao Feng commented that stablecoins have increased payment and settlement efficiency by several times, reduced costs by several times, and greatly reduced the number of intermediate links. If a technology can reduce costs to one-fifth of the original and increase speed five times, it must have great vitality. However, it is worth noting that stablecoin payments have not been included in KYC and anti-money laundering supervision before the bill was introduced. Although the use of stablecoins for cross-border payments is technically more efficient, in fact, this difference comes to a certain extent from regulatory differences. With the standardization of supervision, the compliance costs of stablecoins may also increase. This makes it difficult for the RMB stablecoin to overtake the curve and challenge the hegemony of the US dollar with payment efficiency as the revolutionary point.

Institutional credibility

This dimension involves two meanings. One is the credit of the anchor currency itself, and the other is the transparency and credibility of the stablecoin issuance arrangement. From the perspective of the anchor currency, the US dollar has long been regarded by global investors and official institutions as the most reliable value storage and pricing currency by virtue of the US economic strength and financial system advantages. The "US dollar = credit" is deeply rooted internationally. Although the offshore RMB continues to expand its use, it is subject to China's capital account controls and the limited international acceptance of the RMB, and its global credit image is relatively weaker than that of the US dollar. This means that in order for a stablecoin anchored to the RMB to win the same trust as the US dollar stablecoin (USDT, USDC, etc.) in the eyes of international users, China needs to provide sufficient confidence support in terms of macro-policy stability, RMB currency stability and convertibility. As the market is worried, the concerns faced by RMB stablecoins include: Is the convertibility of offshore RMB (CNH) smooth enough? Are there unpredictable risks in the RMB exchange rate and policy? These directly affect the willingness of overseas users to hold and use RMB stablecoins. Hong Kong's regulatory framework has been carefully designed in terms of the trust mechanism of stablecoins: mandatory information disclosure, independent audits and qualified asset custody will enable the reserve transparency and fund security of RMB stablecoins to reach a high level. In contrast, the currently dominant US dollar stablecoins (such as USDT) were questioned in the early days for their opaque reserves and excessive proportion of commercial paper. If RMB stablecoins strictly follow Hong Kong regulations to implement 100% cash equivalent reserves and publish audit results regularly, they may even be better than some US dollar stablecoins in terms of reserve reliability, thereby enhancing market confidence. Overall, RMB stablecoins have a long way to go to challenge the US dollar hegemony in terms of credit, but through rigorous supervision and transparent mechanism design, they can at least narrow the gap with US dollar stablecoins in terms of "trust deficit".

Compliance and global collaboration

The hegemony of the US dollar is not only reflected in the currency itself, but also in the United States' right to formulate and enforce global financial rules. The expansion of the US dollar stablecoin also depends on the radiation of the US financial system - a large amount of US dollar stablecoin reserves are invested in US Treasury bonds, providing additional demand support for US Treasury bonds. In this context, the launch of the RMB stablecoin is, to some extent, "starting from scratch" outside the existing international financial framework. Its compliance and legal identity need to be recognized by regulators in various countries before it can be widely used. In this regard, Hong Kong provides a feasible path: since Hong Kong's license has the nature of an international springboard, if the licensed RMB stablecoin issuer can establish a credible record in Hong Kong, and then seek to apply for corresponding licenses in Singapore, Europe and other places, and gradually integrate into the local compliance system, the legitimacy of the cross-border circulation of RMB stablecoins will be greatly enhanced. In the future, it is not ruled out that stablecoins with Hong Kong licenses can obtain mutual recognition or exemption treatment in friendly jurisdictions, which will help RMB stablecoins "go global". In comparison, the US dollar stablecoin is still outside the regulation in many countries/regions (some are considered illegal, and some lack clear rules). This is both a risk and an opportunity: markets outside the United States may be open to the RMB stablecoin regulated by Hong Kong, or at least no more conservative than the unregulated stablecoin in the United States. Therefore, in terms of global coordination and compliance, as long as the RMB stablecoin can firmly hold on to Hong Kong as a base and win the support of regional financial centers (such as Singapore, Dubai, etc.), it will have the opportunity to build a cross-border compliance network, coexist in parallel with the US dollar stablecoin, and thus erode part of the US dollar's trading share.

Network Effects and User Base

Competition among currencies is ultimately a competition of network effects. One important reason why the U.S. dollar dominates is that everyone uses the U.S. dollar, whether it is traditional trade, investment pricing or emerging digital transactions. The larger the network, the stronger the advantage. The U.S. dollar stablecoin follows this trend and dominates the global crypto market, forming a huge liquidity network. For example, USDT is widely circulated in global exchanges and over-the-counter markets, and merchants and individuals are also accustomed to using it as a value intermediary. The RMB stablecoin started late and is inherently in a weak network position. To challenge the U.S. dollar, it must quickly expand its own network. On the one hand, China has the world's largest trade volume and supply chain system, and many emerging markets have close trade relations with China. If the RMB stablecoin can be promoted first in cross-border e-commerce, supply chain finance and other fields, it will quickly accumulate real transaction demand and user groups. Xiao Feng pointed out that many small and micro cross-border merchants in China will be one of the biggest beneficiaries of the RMB stablecoin - in the past, they had many difficulties in cross-border payment collection and settlement, and stablecoins greatly facilitated this process. At present, many residents in emerging markets have hedged against currency depreciation and capital controls by holding USDT, thereby expanding the influence of the U.S. dollar in these regions. If there are compliant RMB stablecoins entering in the future and obtaining local regulatory approval, then the RMB may also penetrate into these markets in digital form and compete for the US dollar. Of course, the establishment of network effects is not a one-day job. In order to win the favor of users, the RMB stablecoin needs to create a convenient interface and a wide range of acceptance scenarios in addition to providing stable and reliable value and low-cost, high-efficiency payment experience — including wallet support, merchant acceptance, exchange channels, etc. The US dollar stablecoin has been seamlessly supported by global crypto wallets and trading platforms, while the RMB stablecoin still needs ecological construction in this regard. However, once the regulatory compliance barriers are cleared, market forces will drive various wallets and exchanges to quickly access the RMB stablecoin. After all, for commercial entities, adding a new sovereign stablecoin means a huge market of potential users.

In general, RMB stablecoins are unlikely to shake the hegemony of the US dollar in the short term, but the launch of offshore RMB stablecoins has already placed a key chess piece on the chessboard of digital finance. In the long run, whether RMB stablecoins can challenge the US dollar depends on the pace of China's own financial opening and the international community's confidence in the RMB. In any case, in the new battlefield of stablecoins, the competition between China and the United States for monetary dominance has already begun.

5. Other potential challenges of RMB stablecoin

Market Trust

For any currency to be widely adopted, trust is the cornerstone. The hegemony of the US dollar is certainly supported by political and military factors, but more directly lies in the confidence of global users in the payment and liquidity of the US dollar. In order for the RMB stablecoin to win similar trust, it needs to build credit endorsements at multiple levels. First, the policy must be credible. The "political risks" that the market is worried about include: Will there be sudden restrictions on RMB stablecoins due to geopolitical or regulatory trends? For example, assuming that Sino-US relations are tense in the future, will the Chinese government restrict the exchange of offshore RMB stablecoins for US dollars or require the review of specific transactions? These questions will make some international users worried. In this regard, Chinese regulators should maintain transparent and consistent policies, clarify the regulatory boundaries and support attitude of RMB stablecoins to the market, and eliminate unnecessary suspicions. Second, the operation must be credible. Stablecoin issuers need to establish a reputation. For example, custodian banks should choose banks with good international reputations, and audits should introduce world-renowned audit firms to enhance the trust of international investors. Hong Kong initially plans to issue licenses to a small number of powerful licensed institutions for this reason: select the best from the best and create a benchmark.

Impact of the international political environment

As an innovation that aims to challenge the dominance of the US dollar, the RMB stablecoin is inevitably affected by international games. It is foreseeable that the United States may be wary of it. Once the RMB stablecoin begins to occupy a certain share in global capital flows, the United States may suppress it in various ways, such as requiring US companies and financial institutions not to participate in the RMB stablecoin network, lobbying its allies to refuse to accept RMB stablecoin payments, and even pressuring traditional networks such as SWIFT not to cooperate with relevant offshore RMB clearing banks. This is not alarmist - the United States has sanctioned banks in Iran and other countries in the past, removing them from SWIFT, and in the future it does not rule out the inclusion of digital currencies in the sanctions toolbox.

In short, offshore RMB stablecoins carry the new dream of RMB internationalization, and also face the test of complex reality. From domestic financial security to international currency games, from technical security to user cultivation, every step needs to be taken steadily and methodically. The emergence of RMB stablecoins does not mean that the hegemony of the US dollar will be shaken overnight, but more like the beginning of a protracted war - in the vast world of digital economy and emerging markets, the RMB will strive for more usage and recognition through the new carrier of stablecoins. In the next few years, we may not see the status of the US dollar being replaced, but we may see the pattern of the US dollar's dominance being gradually rewritten: the US dollar, the euro, the RMB and other legal stablecoins coexist and compete, and the global monetary system is evolving towards a more diversified and balanced direction.

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