Yang Tao (Deputy Director of National Institution for Finance & Development at Chinese Academy of Social Sciences)
The Rising Global Momentum of Stablecoins
At the 2025 Lujiazui Forum, People's Bank of China Governor Pan Gongsheng observed that emerging technologies like blockchain and distributed ledger systems are accelerating the development of central bank digital currencies (CBDCs) and stablecoins—while simultaneously posing significant challenges for financial regulation. This commentary gains particular relevance as Hong Kong's Stablecoin Ordinance prepares to take effect on August 1, sparking unprecedented discussions about stablecoin frameworks.
Current Landscape of Offshore Yuan Markets
Traditional offshore yuan operations exhibit distinct characteristics:
- External Offshore Markets: Centered in Hong Kong with multicentric expansion to Singapore and London, these facilitate RMB-denominated financial activities under specific policy frameworks.
- Internal Offshore Mechanisms: Operate through unique account management systems that blend "onshore" and "offshore" features, enabling conditional capital mobility within designated parameters.
Many analysts advocate piloting offshore yuan stablecoins in Hong Kong before gradually expanding to mainland free trade zones. However, we propose a more nuanced strategy.
Why a Dual-Track Approach Matters
Web 3.0-native stablecoins transcend conventional geographic classifications. Three critical factors necessitate coordinated development between internal and external offshore yuan stablecoins:
- Strategic Autonomy: With USD-collateralized stablecoins advancing rapidly and global regulatory landscapes evolving, China must proactively develop yuan stablecoins to safeguard financial sovereignty—not merely react to external developments.
- Scale Limitations: Hong Kong's offshore RMB market lacks sufficient depth to independently support economically viable yuan stablecoins under 1:1 reserve requirements.
- Regulatory Complexity: Stablecoin oversight demands innovative solutions for identity verification, AML compliance, and transaction monitoring—areas where central authorities should lead while collaborating with Hong Kong counterparts.
Shanghai-Hong Kong Synergy: A Proposed Framework
Shanghai's Free Trade Zone (FTZ), established in September 2013, has matured into a sophisticated platform aligned with international trade rules. With enhanced central support—including eight new measures announced by the PBOC—it becomes an ideal testing ground for parallel stablecoin innovation alongside Hong Kong.
Internal Offshore Yuan Stablecoin (CNYC) Models
Model 1: Consortium Approach
- Formation of a specialized issuance entity in Shanghai FTZ comprising clearing organizations, major banks, leading payment providers, and reputable investors
- Establishment of wholesale markets for authorized institutions (e.g., digital yuan operators)
- Gradual development of retail markets serving qualified enterprises/individuals
Model 2: Bank-Led Issuance
- Direct on-chain stablecoin operations by digital yuan operators' Shanghai FTZ branches
- Rigorous compliance protocols for qualified economic entities
- Requires careful navigation of tokenized deposit vs. true stablecoin distinctions
Critical Implementation Requirements:
- Multi-tiered reserve assets (cash, short-term bonds, digital RMB)
- Comprehensive risk management and custody solutions
- "Electronic perimeter" controls limiting initial participation to vetted entities
External Offshore Yuan Stablecoin (CNHC) Architecture
Both models could support:
- Hong Kong-based issuance entities (jointly established by cross-border institutions)
- Or branch operations of mainland-authorized banks/payment providers
- Designed to strengthen Hong Kong's RMB internationalization role
- Potential applications in RWA (Real-World Assets) trading and chain-based finance
Regulatory Coordination and Future Vision
Key priorities include:
- Intelligent monitoring of secondary market activities
- Prevention of illicit flows through non-qualified holders
- Progressive legal framework development
- Synergistic coexistence with digital yuan and tokenized bank deposits
As the Bank for International Settlements notes, stablecoins still face challenges in singleness, elasticity, and integrity. Yuan stablecoin development must therefore proceed cautiously while contributing to the emerging "Finternet" ecosystem through unified ledger technologies.
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Frequently Asked Questions
Q1: What distinguishes CNYC from CNHC stablecoins?
A: CNYC operates within mainland free trade zones with controlled circulation, while CNHC enhances Hong Kong's offshore RMB capabilities for broader financial applications.
Q2: How does this approach address scale limitations?
A: The dual-system creates complementary liquidity pools while mitigating Hong Kong's market depth constraints through mainland participation.
Q3: What safeguards prevent unauthorized usage?
A: Technical controls like smart contract limitations and rigorous KYC procedures restrict participation to approved entities during pilot phases.
Q4: Why involve digital RMB in reserves?
A: Partial digital yuan reserves create policy synergy and facilitate potential interoperability with China's CBDC system.
Q5: How might this impact RMB internationalization?
A: By creating new instrument for cross-border trade and RWA transactions, it potentially accelerates global RMB adoption.
Q6: What timeline governs implementation?
A: Progressive rollout aligned with regulatory readiness, likely beginning with restricted institutional participation before gradual expansion.
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