In mainland China, cryptocurrencies remain banned. But stablecoins, or digital tokens pegged to traditional currencies, are starting to draw interest from local policymakers. As Hong Kong prepares to implement its stablecoin licensing rules on August 1, it is positioning itself as a test bed for what could become one of the most significant steps in creating a digital renminbi that circulates offshore.
This is an important time for Beijing, thanks to a surge in dollar stablecoin usage among Chinese exporters, coupled with the openness of the People’s Bank of China to digital financial instruments. For now, US dollar-denominated stablecoins account for more than 99 per cent of the global market, reflecting its role as the default currency for international trade and financial settlement. The renminbi remains constrained by limited offshore circulation. It makes up less than 3 per cent of total cross-border transactions, and is subject to tight capital controls.
Yet a viable renminbi stablecoin, especially one issued offshore through regulated Hong Kong entities, has the potential to disrupt this entrenched dependence on the dollar. Counterparties anywhere could trade a digital token that represents a claim on renminbi, yet the underlying currency itself would remain in China, safeguarding Beijing’s capital controls.