MNI: China To Test Offshore Stablecoin As U.S. Coins Spread

Chinese regulators are considering a pilot test of yuan-pegged stablecoins in Hong Kong, as part of wider efforts to promote international use of their currency and as Beijing keeps a close eye on the quick expansion of dollar-based stablecoins, policy advisors and experts told MNI.

While the offshore yuan pool in Hong Kong makes up just around 3% of the PBOC’s total money supply, a manageable size for pilot testing, early issuance volumes of stablecoins would depend on market demand, according to Zhu Taihui, senior fellow at the National Institution for Finance and Development. If successful, the trial could expand to mainland free trade zones such as Hainan or Shanghai, he said.

Global stablecoin usage is rapidly expanding beyond crypto settlements into cross-border payments, as well as into investment and retail uses, while yuan-coins could also mitigate uncertainties surrounding mBridge, the multi-central bank digital currency platform originally co-developed with the Bank for International Settlements, said Zhu.

Global financial institutions, including major banks, are now launching their own digital token stablecoins, he said, pointing to tokenisation efforts in both Hong Kong and the U.S. which aim to put assets such as government bonds on blockchain platforms to improve liquidity and global accessibility.

Allowing companies to issue yuan-backed coins offshore in Hong Kong will also preserve China’s cross-border capital management, and if needed, the PBOC could boost yuan liquidity in the territory by allowing greater flows through the Bond Connect and Wealth Management Connect channels with the mainland, and by additional central bank bill issuance, according to Zhu. (See MNI: Beijing Pushes Yuan's Global Role As U.S Dollar Falters)

FIAT-BACKED STABLECOINS

Compared to volatile cryptocurrencies like Bitcoin and Ethereum, fiat currency-anchored stablecoins offer greater stability together with the efficiency of cryptocurrency, and have entered a fast growth trajectory since 2023. 

Wang Puyu, senior researcher at Hong Kong-based HashKey Tokenisation, said U.S. dollar-pegged stablecoins are accelerating dollar digitalisation and cementing the dollar’s global dominance. 

Beijing is closely watching this expansion, and launching a yuan-pegged stablecoin would be a strategic counterweight, Wang said. 

Yuan-backed stablecoins will lower cross-border transaction costs, enhance yuan liquidity, and meet growing global demand for the currency, advisors said. (See MNI INTERVIEW: Yuan To Emerge As Regional Reserve Currency)

According to RWA.xyz, a leading analytics platform for tokenised real-world assets, global stablecoins had a total market value of USD239.5 billion as of June 26, with 99% pegged to the dollar. Roughly 80% of reserves backing these stablecoins are held in Treasurys, making issuers significant holders of U.S. sovereign debt.

Stablecoins could help China reduce reliance on the dollar-based clearing and settlement systems, which would have significant strategic value, said Song Ke, vice dean at Shenzhen Research Institute at Renmin University.

Traditional bank-based cross-border payments take an average of five business days and cost more than 6% of the amount transferred, according to World Bank data on remittances. In contrast, stablecoin transactions on blockchains like Solana cost an average of just USD0.00025 and settle in real time.

Blockchain enables direct, peer-to-peer cross-border transactions without the need for traditional messaging infrastructure or multi-tiered banking networks, noted Zhu, adding that the issuance of an offshore yuan stablecoin will complement mBridge’s digital yuan and help accelerate the currency’s internationalisation.

Following the BIS’s withdrawal from mBridge in October 2024, the platform faces challenges in application scenarios and international acceptance, amid intensifying competition from blockchain-based cross-border payment initiatives, Zhu said.

RISKS

Despite growing momentum, no official timeline has been set for yuan stablecoin issuance. Key challenges include anti-money laundering compliance and illicit finance prevention, Zhu said, proposing the integration of smart contracts to limit how stablecoins are used.

Citibank estimates the global stablecoin market could grow to USD1.6 trillion by 2030, with a bull-case of USD3.7 trillion. However, both Zhu and Wang expect the yuan’s expansion to be gradual.

A yuan stablecoin, however, will find the U.S. dollar’s first mover advantage challenging, Wang said, noting USD stablecoins are now widely used for offshore transactions, sometimes to bypass U.S. sanctions. The fragmented U.S. regulatory approach has inadvertently promoted its growth, he added.

But the launch of an offshore yuan stablecoins will be highly attractive in the increasingly competitive stablecoin landscape, Song said.