Renminbi stablecoin: A new development approach combining domestic and international elements

Recently, the topic of stablecoins has sparked widespread discussion in the financial sector. With Hong Kong set to implement new stablecoin regulatory rules, the industry has engaged in a heated debate over the development model of the renminbi stablecoin.

Traditional views suggest that offshore RMB stablecoin should first be piloted in Hong Kong and then explored in domestic free trade zones once conditions mature. However, in the Web 3.0 era, stablecoins have transcended the traditional boundaries of offshore and onshore. To better achieve strategic coordination, proactive regulation, and collaborative advancement, we recommend adopting a development model for RMB stablecoin that links domestic and foreign markets.

The advantages of this model are as follows: First, in the face of the rapid development of dollar-collateralized stablecoins and changes in the global regulatory landscape, our country needs to proactively conduct research and regulation on stablecoins from the perspective of financial security and monetary sovereignty. Second, the scale of the offshore RMB market in Hong Kong is limited, which may struggle to independently support the RMB stablecoin to achieve economies of scale. Finally, stablecoin regulation involves many frontier challenges such as identity verification and anti-money laundering, requiring leadership from central departments while seeking cooperation from Hong Kong regulatory authorities.

Specifically, consideration can be given to synchronously promoting the innovative exploration of the Renminbi stablecoin in the Shanghai Free Trade Zone and Hong Kong. For the onshore offshore Renminbi stablecoin (CNYC), two models can be adopted: one is to establish stablecoin issuance institutions in the Shanghai Free Trade Zone by multiple parties; the other is to directly mint and operate the stablecoin through the branches of the digital Renminbi operating institutions in the Free Trade Zone.

Regardless of the mode adopted, the following requirements need to be implemented synchronously: set up sufficient asset reserves, including a certain proportion of digital RMB reserves; establish a sound compliance operation mechanism for risk identification, asset isolation and custody, internal controls, etc.; draw on the "electronic fence" characteristics of FT accounts to restrict the users of stablecoins.

For offshore Renminbi stablecoin (CNHC), an issuing institution can be established in Hong Kong or domestic authorized institutions are allowed to issue in Hong Kong. This dual Renminbi stablecoin system formed can explore the exchange and interoperability mechanism between CNYC and CNHC. CNYC is mainly used to enhance the payment efficiency of cross-border trade and business activities, while CNHC is dedicated to strengthening Hong Kong's position in the internationalization of Renminbi and supporting RWA (Real-World Assets) based on Renminbi assets.

It is worth noting that regulatory authorities and stablecoin issuers need to work closely together to continuously promote technological innovation in intelligence, effectively identify and monitor activities in the secondary market for stablecoins, and prevent illegal fund flows and illegal use.

The Bank for International Settlements (BIS) pointed out that stablecoins still have shortcomings in terms of singularity, flexibility, and integrity. Therefore, the exploration of the renminbi stablecoin needs to strictly control risks, proceed gradually, and maintain an appropriate scale, while promoting the formulation of relevant laws and regulations as soon as possible. In the future, we can draw on the "financial internet" concept proposed by the BIS to promote the coordinated development of digital renminbi, bank tokenized deposits, and stablecoins, achieving complementary win-win outcomes.