Note: Recently, everyone has been talking about stablecoins. Jinse Finance previously compiled discussions about stablecoins from various Chinese circles, including government officials, entrepreneurs, economists, national think tanks, and securities firms. Please refer to "US 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 see how foreign securities firms view stablecoins and their impact on RMB internationalization.
Full text as follows:
We believe China's recent new interest in stablecoins is due to concerns that potential US stablecoin legislation might expand the dollar's dominant position. The People's Bank of China is using Hong Kong as a testing ground for future payment alternatives. However, tokenization alone cannot internationalize the renminbi; the real work lies in domestic reforms.
Why is Beijing Focusing on Stablecoins Now?
The US Senate passed the GENIUS Act, which requires US dollar stablecoins to have full backing, marking a turning point. If the bill passes in the House of Representatives, it will effectively transform dollar-pegged stablecoins (currently 99% of the stablecoin market) into synthetic dollars and deeply embed them in the global payment system, thereby increasing demand for US Treasury bonds.
In our view, this is not a challenge to the dollar's dominance—but rather further strengthens it. Stablecoins are not new currencies, but new distribution channels for existing currencies. They extend the dollar's influence to cryptocurrencies, Web3, and emerging markets through low-cost, near-instant settlements.
For China, ignoring this trend could lead to falling behind in digital infrastructure competition, especially as stablecoins increasingly bypass traditional banking network mechanisms.
The People's Bank of China's Shift—From Prohibition to Blueprint
Since September 2021, cryptocurrency trading has been deemed illegal in mainland China due to regulators' concerns about financial stability risks. However, PBOC Governor Pan Gongsheng's speech at the Lujiazui Forum this week signaled a policy shift: he called for constructing a multipolar global monetary system and promised to ensure international transaction safety. With improved efficiency and technological maturity, digital renminbi and stablecoins were proposed as viable cross-border settlement alternatives. Governor Pan specifically noted that digital technologies exposed weaknesses in traditional cross-border payment systems, which are inefficient and vulnerable to geopolitical risks.
RMB Stablecoins—Prospects and Constraints
Currently, cross-border digital renminbi settlements primarily rely on the M-Bridge platform developed by the Bank for International Settlements (BIS). However, the project remains small, with only five central banks participating, and the BIS is set to exit in October 2024, potentially slowing future expansion. Theoretically, RMB stablecoins possess decentralized, accessible, and efficient characteristics, making them a good complement to cross-border transactions. However, domestic prohibitions, continued capital controls, and lack of global recognition under dollar stablecoin dominance limit RMB stablecoin development.
Hong Kong—Strategic "Sandbox"
Hong Kong is the first global jurisdiction to pass stablecoin legislation, effective August 1st. The Stablecoin Bill requires stablecoins to be 100% high-quality reserve-backed and pegged to corresponding currencies (whether US dollars, Hong Kong dollars, or offshore renminbi)—effectively paving the first legal path for offshore RMB stablecoins. According to the legislation, Hong Kong will first promote stablecoins pegged to US and Hong Kong dollars to establish technological and market trust, then advance offshore RMB-pegged stablecoins. Leveraging Hong Kong's deep offshore RMB liquidity pool (approximately 1 trillion RMB), offshore RMB stablecoins can provide practical cross-border settlement application scenario verification without violating mainland capital controls or affecting onshore financial stability. Increased offshore RMB usage will also drive demand for RMB assets like offshore RMB government bonds and central bank bills.
Stablecoins are Tools, Not Strategies
It must be clear that the rise of stablecoins does not signify the establishment of a new "supranational" international monetary system. In fact, stablecoins are merely extensions of existing legal tender under current regulations, used to facilitate cross-border transactions. In this sense, we believe RMB stablecoin development should be viewed 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 global RMB clearing service networks.
Infrastructure Development is Not Everything; RMB Internationalization Remains a Long-Term Battle
Although Beijing is accelerating cross-border settlement infrastructure construction, RMB internationalization has experienced a setback over the past three years. By the end of 2024, the RMB's share in global reserve currencies has dropped from 2.8% in early 2022 to 2.2%. This is primarily due to market concerns about China's "3D challenges" (Debt, Deflation, and Demographics) weakening capital flows, offsetting increased RMB usage in trade.
This means the key to enhancing global RMB usage lies in global confidence in China's economic growth potential. To this end, we believe decisive structural measures are needed to rebalance the economy through consumption-driven growth and break the deflationary cycle. This includes social welfare reform, debt restructuring, tax system reform, and a growth-promoting regulatory environment. All these are challenging reforms that can only be progressively implemented (see May 28, 2025's "Is China Rebalancing?"), suggesting the RMB internationalization path may be long and turbulent.
