Discussion on the Development Prospects and Models of the Renminbi Stablecoin

Recently, stablecoins have become a hot topic in the financial sector. With the development of new technologies, central bank digital currencies and stablecoins are booming, which also poses significant challenges for financial regulation. The upcoming "Stablecoin Regulation" in Hong Kong has sparked widespread attention.

Traditionally, offshore renminbi business is divided into two types: overseas and domestic. The overseas business is mainly concentrated in Hong Kong and has expanded to places like Singapore and London. The domestic business achieves capital freedom of movement under specific conditions. Some viewpoints suggest that offshore renminbi stablecoin should first be piloted in Hong Kong, and once conditions are mature, explore it in domestic free trade zones.

However, the stablecoins in the Web 3.0 era have surpassed traditional concepts. To achieve strategic coordination and proactive regulation, we recommend adopting a development model for the RMB stablecoin that links domestic and international markets. There are three reasons for this: first, there is a need to proactively respond to the rapid development of USD stablecoins and global regulatory trends; second, the Hong Kong market is limited in scale, which may make it difficult to independently support the RMB stablecoin to achieve economies of scale; and third, the regulation of stablecoins involves many cutting-edge challenges that require central departments to take the lead and coordinate with Hong Kong regulatory agencies.

Since its establishment, the Shanghai Free Trade Zone has built a system that aligns with international rules. The central government has also strongly supported the construction of Shanghai as an international financial center. Therefore, it is worth considering the simultaneous promotion of the innovation and exploration of the Renminbi stablecoin in the Shanghai Free Trade Zone and Hong Kong.

For offshore RMB stablecoins (CNYC) within the territory, two models can be adopted: first, multiple institutions can establish a stablecoin issuance organization in the Shanghai Free Trade Zone to create an on-chain issuance and operation mechanism; second, relying on the branch of the digital RMB operating institution in the Free Trade Zone to directly mint and operate the stablecoin. Regardless of which model is adopted, it is necessary to ensure sufficient asset reserves, a sound risk management mechanism, and to restrict the use of the stablecoin.

In terms of offshore Renminbi stablecoin (CNHC), it is possible to promote joint issuance by domestic and foreign institutions in Hong Kong, or allow domestic authorized institutions to issue through Hong Kong legal entities. This will form a dual Renminbi stablecoin system for domestic and foreign markets and explore the exchange and connectivity mechanism between CNYC and CNHC. CNYC is mainly used to enhance the efficiency of cross-border trade, while CNHC strengthens Hong Kong's position in the internationalization of the Renminbi and supports the tokenization of physical assets based on Renminbi assets.

In terms of regulation, it is necessary to continuously promote technological innovation, effectively identify secondary market activities, and prevent illegal capital flows. At the same time, the exploration of the RMB stablecoin should strictly control risks, proceed gradually, and promote the formulation of relevant regulations as soon as possible. In the future, we can draw on the "financial internet" concept proposed by the Bank for International Settlements to promote the coordinated development of the digital RMB, bank tokenized deposits, and stablecoins.