Is it impossible for China to issue stablecoins in the mainland? How will the digitalization of the Renminbi develop?

Recently, discussions surrounding the digitalization of the Renminbi present a highly dynamic picture: on one side, mainland China maintains strict bans on Crypto Assets and stablecoins, while on the other side, Hong Kong is ambitiously rolling out the red carpet, aiming to create a globally leading regulated virtual asset center. The “Stablecoin Regulation” by the Hong Kong Monetary Authority, which will take effect on August 1, 2025, further intensifies this contrast of “ice and fire.”

The market cannot help but ask: under the strict financial regulatory walls in the mainland, will stablecoins ever be able to land? What direction will the digitalization process of the Renminbi take? The answer is not a simple “yes” or “no,” but rather reveals a carefully designed, complex, and multi-layered “dual-track parallel” and “trio” strategy.

The “absolute red line” in the mainland

To understand China's digital currency strategy, one must first recognize an unbreachable “absolute red line”—the stability of national financial sovereignty and capital controls. Since the prohibition of Initial Coin Offerings (ICO) in 2017 and the comprehensive ban on Crypto Assets trading in 2021, the stance of mainland regulatory authorities has remained consistent: any private digital currency that may challenge the legal status of the Renminbi, threaten financial stability, or facilitate capital outflow is subject to severe crackdowns. Recent actions against the illegal cross-border transfers using Tether (USDT) further confirm this point.

In this context, the digital renminbi (e-CNY) created by the People's Bank of China has become the only legitimate choice at the national level. However, it must be clear that e-CNY is essentially a central bank digital currency (CBDC), which is a direct liability of the central bank to the public (M0) and a digital form of legal tender. Its design philosophy is “centralized” and “controllable anonymity”, with the primary goal of optimizing the domestic retail payment system, enhancing the efficiency of monetary policy transmission, and exploring cross-border payments within a controllable range. It is a top-down “walled garden”, where the core is “control” rather than the “openness” valued in the encryption world.

Therefore, fundamentally, it is unlikely that the mainland will allow the existence of a stablecoin that is based on a public chain, freely circulating, and issued by private entities. This would not only conflict with the strategic positioning of the e-CNY, but also directly touch on the sensitive nerve of capital free movement, challenging the classic “Mundell-Fleming trilemma” theory - that is, a country cannot simultaneously achieve capital free movement, a fixed exchange rate, and an independent monetary policy. Given that China views the latter two as core interests, strict control over capital flows is an inevitable choice.

Hong Kong's “testing ground”

In sharp contrast to the strict prevention measures in mainland China, Hong Kong is playing a unique role as a “testing ground.” The Hong Kong government's strategy is not to let things run wild, but to “embrace within regulation,” aiming to turn Hong Kong into a transparent, compliant global Web3 center that can protect investors.

The “Stablecoin Regulation” effective August 1, 2025, is the core of this strategy. The regulation sets extremely high entry barriers for fiat stablecoin issuers: High capital requirements: The paid-in capital must be at least 25 million HKD. Full reserve: 100% high-quality liquid assets must be held as reserves and managed by an independent custodian. Strict redemption mechanism: The issuer must ensure that holders can redeem funds at face value within one working day. Comprehensive compliance obligations: Adhere to strict anti-money laundering (AML) and know your customer (KYC) regulations.

Despite the high enthusiasm in the market, over 77 institutions have expressed interest in applying for licenses, but the attitude of Hong Kong regulators is extremely cautious. The Hong Kong Monetary Authority has publicly refuted the claim that “the world's first offshore RMB stablecoin has been issued in Hong Kong” as false news and has emphasized that no stablecoin issuance licenses have been granted to date. The first batch of licenses is expected to be issued no earlier than the end of 2025 or early 2026, and the initial quota will be limited, aiming to ensure that risks are controllable.

In addition, the Secretary for Financial Services and the Treasury, Xu Zhengyu, clearly pointed out that over-the-counter (OTC) operators do not fall under the five types of “recognized providers” acknowledged by the regulations, and therefore cannot offer stablecoins to any investors (including retail and professional investors), clarifying the boundaries of compliant sales. All of this indicates that Hong Kong's experiment is being conducted within a highly controlled sandbox.

It is worth mentioning that Hong Kong's open stance has raised deep concerns among the mainland regulatory authorities. It is reported that mainland regulatory agencies have provided “window guidance” to some companies planning to apply for licenses in Hong Kong, expressing a cautious attitude. The concerns behind this mainly include three points: Concerns about the financial firewall: How can an offshore Renminbi (CNH) stablecoin that freely circulates on public chains ensure that it is not used as a new channel to evade capital controls in the mainland? Once its reserves encounter problems or experience sharp fluctuations in price, will it have a reverse impact on the financial stability in the mainland? The issue of the extension of monetary sovereignty: Who holds the issuance rights, governance rights, and clearing rights for a digital currency pegged to the Renminbi issued in the offshore market? This directly touches on the core of monetary sovereignty. Strategic conflicts with e-CNY: If a CNH stablecoin issued by commercial institutions circulates widely globally, will it weaken e-CNY's strategic layout in the field of cross-border payments?

It is these fundamental structural contradictions that determine that the mainland will inevitably adopt a cautious observation and gradual opening attitude towards Hong Kong's stablecoin experiment. Before regulatory technology and risk isolation mechanisms are fully matured, any gate that may threaten the effectiveness of capital controls will not be easily opened.

The Road Ahead

In summary of the above analysis, the future of the digital yuan is unlikely to be a single path, but is more likely to evolve into three parallel paths that occasionally intersect, together forming a “trio:”

Path One: Official Sovereign Layer - the “Walled Garden” of e-CNY e-CNY will continue to be the only officially recognized digital legal currency, accelerating its adoption in mainland China. Its cross-border applications will mainly be conducted through multilateral and permissioned clearing networks such as mBridge (Multilateral Central Bank Digital Currency Bridge), enabling point-to-point “wholesale” cross-border payments. This is a “strong control” path centered on sovereign credit, pursuing absolute security and controllability.

Path Two: Offshore Compliance Layer - Hong Kong's “Limited Open” Sandbox Hong Kong will serve as a controlled pressure testing ground. In the future, when the regulatory framework matures, the mainland may tacitly allow a few well-capitalized institutions with strong risk control capabilities (most likely large financial institutions) to issue highly restricted CNH stablecoins in Hong Kong. This stablecoin may be based on permissioned chains or public chains with a whitelist mechanism, with transactions strictly monitored. Its main function will be to serve institutional-level financial market operations, such as commodity trade and Bond Connect, rather than targeting retail and crypto speculation. This is a “semi-open” path for pressure testing within sovereign borders.

Path Three: Market Application Layer - “Deep Cultivation” in Specific Scenarios The innovative power of the market will not disappear, but will seek new outlets. The offshore RMB stablecoin AxCNH, which was launched under the regulatory framework of Kazakhstan and aims at trade settlement along the “Belt and Road” initiative, is a typical example. Such projects will give up the grand goal of becoming a universal currency and instead position themselves as B-end fintech tools that serve specific industrial chains (such as cross-border e-commerce, supply chain finance) or specific strategies (such as the “Belt and Road”). Their success or failure depends not on the bull or bear market of Crypto Assets, but on whether they can truly reduce costs and improve efficiency for the real economy. This is a “pragmatic” path that avoids direct regulation and serves the real economy.

Conclusion

Returning to the initial question: It is almost certain that mainland China cannot issue what we commonly understand as a stablecoin based on public chains, as it touches upon the “absolute red line” of national financial sovereignty. However, this does not mean that the path to digitizing the Renminbi is blocked.

On the contrary, China is playing a grand game. This game is composed of the solemn main theme of e-CNY, the prudent concerto of compliant stablecoins in Hong Kong, and the flexible variations of numerous scenario-based stablecoins. This complex “trio” is always conducted by a nation pursuing “stability” and “control.” The eternal game between global liquidity in the digital age and the financial sovereignty of a single country will continue to evolve in this unique and exquisite manner.

#Hong Kong stablecoin new regulations