The cryptocurrency sector is buzzing with speculation following recent reports indicating that China might ease its position on a yuan-backed stablecoin; however, legal experts caution against misinterpreting these developments.
On Wednesday, Reuters reported that Beijing is contemplating the approval of a stablecoin tied to the renminbi as a strategy to enhance the currency’s global presence. This was the second report this month, following a similar story by the Financial Times on August 5. Despite this, Chinese officials have yet to clarify their stance on a stablecoin initiative.
Even if Chinese authorities proceed, analysts emphasize that any resulting stablecoin would likely operate offshore rather than within the mainland.
“The news regarding stablecoins linked to China’s currency appears credible, but it may not align with common assumptions. China is expected to issue stablecoins offshore, rather than onshore,” stated Joshua Chu, co-chair of the Hong Kong Web3 Association, in an interview with Cointelegraph.
China’s currency functions in two separate markets — the onshore yuan (CNY) and the offshore yuan (CNH) — and any stablecoin development would probably be associated with the latter.
Don’t expect China to peg a stablecoin to the CNY
China’s currency is intentionally separated into CNY and CNH. The CNY is strictly for mainland use, and it does not freely move in and out of China. A stablecoin pegged to the CNY would conflict with Beijing’s stringent capital control policies.
The CNH and CNY are the same currency; however, their values may diverge due to trading in distinct markets. Essentially, if international markets are bearish on China, the CNH may weaken more than the CNY. Conversely, if there is robust demand for Chinese assets from abroad, CNH can appreciate relative to CNY.
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A similar phenomenon known as “kimchi premium” can be observed in South Korea’s Bitcoin (BTC) market, where BTC frequently trades at a premium because of the country’s restricted crypto environment.
Earlier reports suggest that China’s internet giants have been lobbying for the green light on an offshore yuan stablecoin. Domestically, Beijing remains focused on digitizing its CNY through the central bank’s digital currency (CBDC), the digital yuan, also known as the e-CNY.
Winston Ma, an adjunct law professor at New York University and former managing director of the China Investment Corporation in North America, remarked that if Beijing were to consider a CNY stablecoin, it would need to be developed alongside the CBDC.
“In mainland China, the government’s push for a sovereign CBDC via state bank channels and mobile payment platforms shows no signs of waning,” Ma informed Cointelegraph.
“In the mainland market, any stablecoin trial would most likely be integrated with the existing e-CNY, which has already been tested by millions of Chinese users across various transaction contexts.”
A seat “reserved” in Hong Kong for China’s stablecoin
In June 2010, Beijing broadened its cross-border RMB trade settlement initiative to 20 provinces and all foreign counterparts, an action that initiated the growth of Hong Kong’s offshore CNH market.
Hong Kong swiftly became the largest liquidity pool for CNH, pioneering the issuance of “dim sum bonds” denominated in offshore yuan and establishing itself as the primary location for CNH-related trading. Other hubs, including London and Singapore, have since created their own markets.
The city also acts as a policy bridge, enabling Chinese authorities to experiment with yuan internationalization while maintaining stringent controls over the onshore CNY market. Additionally, Hong Kong offers a legal framework for cryptocurrency trading, allowing exchanges to apply for licenses unavailable on the mainland. Reports indicate that authorities have even utilized the city as a venue to liquidate confiscated crypto assets.
This bridge is now extending into stablecoins. As of August 1, new stablecoin regulations came into effect in Hong Kong, mandating issuers to obtain a license. This rollout follows Washington’s pursuit of stablecoin supremacy under the GENIUS Act, which aims to reinforce the dominance of the US dollar.
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“China’s stablecoin experiment will likely take place in Hong Kong, which is uniquely positioned to test both CBDC and stablecoins associated with the Chinese RMB,” commented Ma.
Chinese scholars have repeatedly warned that dollar-pegged stablecoins threaten the yuan’s welfare. In June, two academics writing for China Economic Times — a daily backed by the State Council’s Development Research Center — asserted that the rise of Tether’s USDt (USDT) and USDC poses risks to China’s financial autonomy.
This assertion was echoed recently by Zhang Monan, deputy director of the Institute of American and European Studies at the China Center for International Economic Exchanges, who stated that the GENIUS Act would reinforce dollar supremacy. However, she noted that Hong Kong’s stablecoin regulations open the door for a yuan-pegged token to potentially challenge that dominance, should it ever be allowed.
CNH volume is relatively small for global stablecoin dominance
Currently, the onshore CNY remains subject to capital controls, limiting the potential for any stablecoin that competes with the e-CNY. The offshore CNH, with Hong Kong as its experimental ground, seems the more feasible option.
However, a CNH-pegged stablecoin may not achieve global volumes, as argued by Chu, given that the offshore yuan market is “relatively small” compared to its onshore counterpart.
As of the end of July, China’s broad money supply was estimated at 329.94 trillion yuan (around $45 trillion). In contrast, Hong Kong’s offshore yuan (CNH) deposit base was only 0.88 trillion yuan at the end of June — merely 0.27% of the mainland’s supply.
“With the activation of Hong Kong’s Stablecoins Ordinance, a CNH-backed stablecoin is highly plausible. However, its scale may not meet the expectations of some crypto enthusiasts,” Chu remarked.
As dollar-backed coins dominate the market, Chu views China’s stablecoin initiative as less about capturing retail crypto interest and more about strategically positioning its currency within an increasingly digital financial landscape.
In this context, Beijing’s stablecoin experiment appears not as a controlled trial in Hong Kong but as an effort to extend the yuan’s influence while maintaining stringent controls domestically.
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