JD.com and Ant Group lobby the central bank: Will the issuance of offshore RMB stablecoins in Hong Kong affect the dominance of the US dollar?

Currently, the US dollar accounts for nearly 48% of the global payment market, while the Chinese yuan is only 2.89%. Against the backdrop of digital payments potentially reshaping the global financial landscape, Chinese e-commerce giants JD.com and Alibaba's fintech subsidiary Ant Group are seeking to play a role in this.

1. The Current Status and Challenges of the US Dollar Stablecoin

The current market value of stablecoins is approximately $258 billion, with the top ten stablecoins all pegged to the US dollar, making the dollar the default settlement layer in the crypto world. Former Deputy Governor of the Bank of China, Wang Yongli, has warned: "If the efficiency of cross-border payments in RMB continues to lag behind that of US dollar stablecoins, it could impact national strategic security." This highlights the passive position of the RMB in digital finance and explains why Chinese companies may be eager to enter the stablecoin field.

The data from the Bank for International Settlements shows that over 99% of stablecoins are denominated in US dollars. Wang Yongli, former vice president of the Bank of China, stated that the global expansion of US dollar stablecoins poses new challenges to the internationalization of the renminbi. If the efficiency of renminbi cross-border payments is not on par with that of US dollar stablecoins, it will pose a strategic risk.

The share of the Renminbi as a global payment currency fell to 2.89% in May of this year, a new low in nearly two years, while the US dollar accounted for 48.46%. Stablecoins supported by blockchain technology have the potential to impact traditional cross-border payment systems due to their instant, borderless, and low-cost fund transfer characteristics. Many Chinese exporters have begun using US dollar stablecoins for trade settlement due to factors such as capital controls, geopolitical tensions, and the risks of currency fluctuations in emerging markets.

2. Two Major Tech Companies Promote Offshore Renminbi Stablecoin

According to a report by Reuters on the 3rd, citing informed sources, JD.com and Ant Group have privately lobbied the People's Bank of China multiple times, hoping to issue a stablecoin based on offshore yuan (CNH). The preferred location is Hong Kong, with plans to extend to the free trade zone and Singapore.

These companies believe that offshore structures help to circumvent domestic capital controls and can also test the reaction of international markets.

According to a report by Reuters, sources indicate that Chinese e-commerce giant JD.com and Alibaba's affiliated company Ant Group are actively urging the People's Bank of China (PBOC) to authorize the issuance of a stablecoin based on the Renminbi. This move aims to counter the growing influence of dollar-pegged cryptocurrencies and to help promote the global use of the Renminbi.

Reports suggest that if their lobbying is successful, it could signify a significant shift in Beijing's cryptocurrency policy, as it had comprehensively banned cryptocurrency trading in 2021.

Two companies proposed that China should allow the issuance of a stablecoin linked to the offshore yuan in Hong Kong. JD emphasized in closed-door discussions with the People's Bank of China that an offshore yuan stablecoin is a tool to promote the internationalization of the yuan, pointing out that the Hong Kong dollar stablecoin pegged to the US dollar does not help with the trade use of the yuan. Ant Group is also preparing to apply for a stablecoin license in Hong Kong and Singapore, while getting ready for the offshore yuan stablecoin.

3. Hong Kong Regulatory Window and Market Potential

The Hong Kong "Stablecoin Regulation" will take effect on August 1, requiring all fiat-backed stablecoins to apply for a license, seen as a regulatory sandbox and an international springboard. If offshore RMB stablecoins become a reality, it is expected to form a "foreign anchoring, domestic retail" dual track with the digital RMB (e-CNY) to strengthen the circulation of the RMB.

The Hong Kong "Stablecoin Regulation" will take effect on August 1 this year, at which point the Hong Kong Monetary Authority will begin accepting license applications.

The global stablecoin market is currently about $247 billion, but Standard Chartered Bank predicts it could grow to $2 trillion by 2028.

Conclusion:

The move by JD.com and Ant Group to promote the issuance of offshore RMB stablecoins in Hong Kong reflects the strategic considerations of Chinese enterprises in the digital finance sector. Although offshore RMB stablecoins are unlikely to replace the US dollar overnight, their development could impact the global digital financial landscape. The market still harbors concerns about the convertibility of the RMB and associated risks, and cross-jurisdictional compliance and anti-money laundering requirements have added to the uncertainty.