Note: Recently, everyone has been talking about stablecoins. Jinse Finance previously compiled discussions about stablecoins from various sectors in China, including government officials, entrepreneurs, economists, national think tanks, and brokerages. Refer to 'Dollar Stablecoin Shockwave: How Will China Respond?'.
On May 19, Morgan Stanley's Chief Economist for China, Xing Ziqiang, also led the publication of a research report titled 'Stablecoins and RMB Internationalization?'. Let's take a look at how foreign brokerages view stablecoins and their impact on RMB internationalization.
The full text is as follows:
We believe that China's recent interest in stablecoins is driven by concerns that US stablecoin legislation may expand the dollar's dominance. The People's Bank of China is using Hong Kong as a testing ground for future payment alternatives. However, mere tokenization cannot achieve RMB internationalization; the real work lies in domestic reform.
Why is Beijing focusing on stablecoins now?
The US Senate passed the GENIUS Act, which requires US dollar stablecoins to be fully backed. This marks a turning point. If this bill passes in the House of Representatives, it will effectively transform dollar-pegged stablecoins (which currently account for 99% of the stablecoin market) into synthetic dollars and deeply integrate them into the global payment system, thus increasing demand for US Treasury bonds.
In our view, this is not a challenge to the dominance of the US dollar - but rather further strengthens the dollar's dominance. Stablecoins are not a new currency, but a new distribution channel for existing currencies. They extend the influence of the dollar into cryptocurrencies, Web3, and emerging markets through low-cost, almost instantaneous settlement.
For China, ignoring this trend may lead to falling behind in the competition for digital infrastructure, especially as stablecoins increasingly serve as a means to bypass traditional banking network mechanisms.
The central bank of China’s shift - from prohibition to blueprint
Since September 2021, cryptocurrency trading has been deemed illegal in mainland China due to concerns from regulators about financial stability risks. However, People's Bank of China Governor Pan Gongsheng's speech at the Lujiazui Forum this week signaled a policy shift: he called for the construction of a multipolar global currency system and pledged to ensure the security of international transactions. With improvements in efficiency and technological maturity, digital RMB and stablecoins have been proposed as viable alternatives for cross-border settlements. Governor Pan specifically pointed out that digital technology has exposed the weaknesses of traditional cross-border payment systems, which are inefficient and susceptible to geopolitical risks.
RMB stablecoins - Prospects and Constraints
Currently, the settlement of cross-border digital RMB primarily relies on the multi-central bank digital currency platform developed by the Bank for International Settlements (BIS) - the M Bridge project. However, this project remains small, with only five central banks participating, and the BIS is set to exit in October 2024, which may slow down future expansion. Theoretically, RMB stablecoins possess characteristics such as decentralization, easy accessibility, and high efficiency, making them a good complement for cross-border transactions. However, domestic bans, ongoing capital controls, and a lack of global recognition under the dominance of US stablecoins all limit the development of RMB stablecoins.
Hong Kong - Strategic 'sandbox'
Hong Kong is the first jurisdiction in the world to legislate for stablecoins, with the law effective from August 1. The Stablecoin Bill requires stablecoins to be backed by 100% high-quality reserves and pegged to corresponding currencies (whether it's the US dollar, Hong Kong dollar, or offshore RMB) - which effectively paves the first legal path for offshore RMB stablecoins. According to this legislation, Hong Kong will first promote stablecoins pegged to the US dollar and Hong Kong dollar to establish technological and market trust, followed by the promotion of stablecoins pegged to the offshore RMB. Leveraging Hong Kong's deep offshore RMB liquidity pool (approximately 10 trillion RMB), offshore RMB stablecoins will provide validation for practical application scenarios of cross-border settlements without violating mainland capital controls or affecting onshore financial stability. The increased use of offshore RMB will also drive demand for RMB assets (such as offshore RMB government bonds and central bank bills).
Stablecoins are tools, not strategies
It is important to clarify that the rise of stablecoins does not imply the establishment of a new 'supra-sovereign' international monetary system. In fact, stablecoins are merely an extension of existing fiat currencies under regulation, designed to facilitate cross-border transactions. In this sense, we believe that the development of RMB stablecoins should be regarded as a potential component of China's cross-border RMB settlement infrastructure, which also includes RMB swap agreements, the Cross-border Interbank Payment System (CIPS), and the global RMB clearing service network.
Infrastructure development is not everything; RMB internationalization is still a long-term battle
Although Beijing is accelerating the construction of cross-border settlement infrastructure, RMB internationalization has regressed over the past three years. By the end of 2024, the RMB's share in global reserve currencies has fallen from 2.8% at the beginning of 2022 to 2.2%. This is mainly due to market concerns regarding China's 'three D challenges' (Debt, Deflation, and Demographics), which have weakened capital flows and offset the growth of RMB usage in trade.
This means that enhancing the global use of the RMB depends on global confidence in China's economic growth potential. Therefore, we believe decisive structural measures are needed to achieve economic rebalancing through consumption-driven growth and break the deflationary cycle. This includes social welfare reform, debt restructuring, tax reform, and a regulatory environment that promotes growth. All of these are difficult reforms that can only be advanced gradually (see 'Is China Rebalancing?' on May 28, 2025), meaning the path to RMB internationalization may be long and fraught with challenges.
