Exploring the Internal and External Linkage Model of the Development of the RMB Stablecoin

Recently, the topic of stablecoins has attracted widespread attention. With the advancement of relevant policies, there has been heated discussion about the development model of the renminbi stablecoin.

Traditional views suggest that the offshore RMB stablecoin should first be piloted in the Hong Kong market, and only after conditions are ripe should it be explored in domestic offshore markets such as free trade zones. However, considering the characteristics of stablecoins in the Web 3.0 era, we recommend adopting a development model that links domestic and foreign markets.

This linkage model has several advantages: first, it allows our country to actively respond to the rapid development of dollar-collateralized stablecoins and global regulatory changes, maintaining financial security and monetary sovereignty. Second, the scale of the offshore RMB market in Hong Kong is limited, making it difficult to independently support the RMB stablecoin to achieve economies of scale. Furthermore, stablecoin regulation involves frontier challenges such as identity verification and anti-money laundering, requiring central departments to take the lead and coordinate with Hong Kong regulatory authorities.

Specifically, consideration can be given to synchronously advancing RMB stablecoin innovation in the Shanghai Free Trade Experimental Zone and Hong Kong. For the onshore offshore RMB stablecoin (CNYC), there are two possible models: one is to establish issuing institutions by multiple organizations in the Shanghai Free Trade Zone to explore on-chain issuance and operation mechanisms; the second is to directly mint and operate the stablecoin at the branch of the digital RMB operating institution in the Free Trade Zone.

Regardless of the mode adopted, the following requirements must be met: set up sufficient asset reserves, including a certain proportion of digital RMB reserves; establish a sound risk management and compliance operation mechanism; draw on the "electronic fence" characteristics of FT accounts to limit the holders and users of stablecoins.

For the offshore RMB stablecoin (CNHC), it can be jointly initiated by domestic and foreign institutions as an issuing institution in Hong Kong, or allow domestic authorized institutions to issue through Hong Kong legal entities. This will form a dual RMB stablecoin system for both domestic and foreign markets, and explore the exchange and interoperability mechanism between CNYC and CNHC.

CNYC is mainly used to improve the efficiency of cross-border trade settlement in the short term, while CNHC is dedicated to strengthening Hong Kong's position in the internationalization of the Renminbi and supporting the tokenization of physical assets based on Renminbi assets (RWA).

In terms of regulation, domestic and foreign regulatory authorities should cooperate with issuing institutions to use intelligent technology to monitor activities in the secondary market for stablecoins, preventing illegal capital flows and unlawful activities. At the same time, the exploration of the RMB stablecoin should strictly control risks, proceed gradually, and promote 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 Bank for International Settlements to promote the collaborative development of digital RMB, bank tokenized deposits, and stablecoins, achieving complementary and win-win outcomes.