The cryptocurrency market is buzzing with rumors following recent reports indicating that China might ease its restrictions on a yuan-backed stablecoin, yet legal experts warn against reading too much into the news.
Reuters reported on Wednesday that Beijing is contemplating the approval of a stablecoin tied to the renminbi as part of an initiative to enhance the currency’s global presence. This marks the second report this month, following a similar piece by the Financial Times on August 5. Nevertheless, Chinese officials have not confirmed any intentions regarding a stablecoin initiative.
Even if Chinese authorities proceed, analysts emphasize that such a stablecoin would likely circulate offshore rather than on the mainland.
“The reports regarding stablecoins associated with China’s currency appear credible, but they may not align with common assumptions. China is unlikely to issue stablecoins for domestic use, but we can expect them to emerge in offshore markets,” stated Joshua Chu, co-chair of the Hong Kong Web3 Association, in a conversation with Cointelegraph.
China’s currency operates in two separate environments — the onshore yuan (CNY) and the offshore yuan (CNH) — and any stablecoin initiative would most likely be linked to the latter.
Don’t anticipate China to tie a stablecoin to the CNY
China has intentionally divided its currency into CNY and CNH. The CNY remains limited to mainland use and does not circulate freely across borders. A stablecoin pegged to the CNY would conflict with Beijing’s stringent capital control regulations.
Though CNY and CNH are the same currency, their values may differ because they operate in distinct markets. Essentially, if international markets are pessimistic about China, CNH can devalue more than CNY. Conversely, if there is strong foreign interest in Chinese assets, CNH may trade at a premium compared to CNY.
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A similar scenario known as the “kimchi premium” is witnessed in South Korea’s Bitcoin (BTC) market, where BTC frequently trades at a higher price due to the country’s restricted crypto environment.
Prior reports indicate that China’s tech giants are advocating for the approval of an offshore yuan stablecoin. Domestically, Beijing remains focused on digitizing the CNY through its central bank digital currency (CBDC), known as the digital yuan or e-CNY.
Winston Ma, an adjunct law professor at New York University and former managing director of the China Investment Corporation’s North America office, noted that if Beijing were to consider a CNY stablecoin, it would need to coexist with the CBDC.
“In mainland China, the government’s promotion of its sovereign CBDC via various state bank channels and mobile payment platforms shows no signs of halting,” Ma told Cointelegraph.
“In the mainland environment, any stablecoin trial would most likely be integrated with the e-CNY, which has been tested by millions of Chinese users in various transactional settings.”
A seat “reserved” in Hong Kong for China’s stablecoin
In June 2010, Beijing expanded its cross-border RMB trade settlement program to cover 20 provinces and all foreign partners, which led to the emergence of Hong Kong’s offshore CNH market.
Hong Kong rapidly established itself as the largest liquidity hub for CNH, being the first to issue “dim sum bonds” in offshore yuan and becoming the main marketplace for CNH trade. Other cities, including London and Singapore, have since built their own markets.
The city also functions as a policy bridge, allowing Chinese officials to experiment with the yuan’s internationalization while maintaining strict oversight of the onshore CNY market. At the same time, Hong Kong provides a legal framework for crypto trading, allowing exchanges to apply for licenses not accessible on the mainland. Authorities have also reportedly utilized the city to liquidate confiscated cryptocurrency assets.
This bridge now encompasses stablecoins. As of August 1, new stablecoin regulations in Hong Kong went into effect, mandating that issuers obtain licenses. This development follows Washington’s own drive for stablecoin supremacy under the GENIUS Act, establishing a federal framework to reinforce the USD’s preeminence.
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“China’s stablecoin experiment will likely take place in Hong Kong, uniquely positioned to test both CBDC and stablecoins related to the renminbi,” according to Ma.
Chinese scholars have consistently warned that dollar-pegged stablecoins threaten the yuan’s status. In June, two academics contributing to the China Economic Times — a publication supported by the State Council’s Development Research Center — cautioned that the proliferation of Tether’s USDt (USDT) and USDC (USDC) jeopardizes China’s financial independence.
This sentiment was echoed recently by Zhang Monan, deputy director at the Institute of American and European Studies at the China Center for International Economic Exchanges, who stated that the GENIUS Act will solidify the dollar’s supremacy. However, she acknowledged that Hong Kong’s stablecoin regulations present the potential for a yuan-pegged token to challenge that dominance if permitted.
CNH volume is relatively limited for global stablecoin supremacy
At present, the onshore CNY is subject to capital controls, leaving little space for any stablecoin to rival the e-CNY. The offshore CNH, particularly with Hong Kong as a testing ground, appears to be the more plausible candidate.
However, Chu argues that a CNH-pegged stablecoin may not compete with global volumes, given that the offshore yuan market is “relatively small” compared to the onshore market.
As of the end of July, China’s overall money supply stood at 329.94 trillion yuan (approximately $45 trillion), while the offshore yuan (CNH) deposit pool in Hong Kong was merely 0.88 trillion yuan at the end of June — a mere 0.27% of the mainland’s total supply.
“With Hong Kong’s Stablecoins Ordinance now in effect, a CNH-backed stablecoin is quite probable. However, its scale may be disappointing for some crypto enthusiasts compared to larger global stablecoins,” Chu remarked.
With dollar-backed coins dominating the market, Chu interprets China’s push for a stablecoin as more about securing its currency’s strategic positioning in an increasingly digitized financial landscape than about attracting retail crypto investors.
In that respect, Beijing’s stablecoin initiative appears less as a carefully controlled trial in Hong Kong and more akin to a strategy to expand the yuan’s influence while maintaining strict control domestically.
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