Commentary: The Internationalization of the Yuan and the Role of Stablecoins

Since the beginning of 2025, two major developments have influenced the potential internationalization of the renminbi (RMB). First, Donald Trump’s return to the White House has introduced significant volatility to the global economy, which has challenged the U.S. dollar’s traditional safe-haven status. Yet, the RMB has not significantly benefited compared to other currencies or gold. Second, Hong Kong has enacted legislation regulating stablecoins and is preparing to issue licenses to qualified issuers. This article evaluates the impact of these developments on the RMB’s internationalization process. [para. 1]

Following Trump’s announcement of “reciprocal tariffs” on April 2, the U.S. Dollar Index, a key measure of the dollar’s strength relative to major currencies, began to weaken independently from the usual interest rate spread with other major currencies. Despite stable interest rate spreads, the dollar has lost ground, reflecting its declining safe-haven appeal, even though it remains the world’s predominant currency. [para. 2]

China has long aspired to boost the RMB’s global standing. Nonetheless, in the context of declining confidence in the dollar in recent months, the RMB has not emerged as a leading alternative. Its appreciation against the dollar in 2025 lagged behind that of most other currencies. Also, unlike the U.S. dollar’s decoupling from other major currencies in relation to bond yields, no similar dynamics have appeared in the RMB-dollar exchange rate. [para. 3]

A possible explanation for investors’ lukewarm response to the RMB is the People’s Bank of China’s tight control over the currency’s exchange rate and the government’s policy to avoid volatility. Even if perceived as a “safe haven,” the RMB’s potential for appreciation remains constrained. Ongoing deflationary pressures in China and falling domestic interest rates make the RMB a less attractive option, with the possibility of further depreciation. Persistent market skepticism about the RMB's suitability as a safe-haven currency is a significant barrier to its internationalization. [para. 4]

Hong Kong’s newly introduced Stablecoins Ordinance has garnered attention and is seen as likely to support the issuance of stablecoins tied to the Hong Kong dollar. However, because the Hong Kong dollar is itself pegged to the U.S. dollar, the broader international effect of such stablecoins may be limited. [para. 5]

Nonetheless, differences between Hong Kong’s stablecoin laws and those in the U.S. have sparked discussions regarding the internationalization of the RMB. Whereas U.S. rules limit support to dollar-pegged stablecoins backed by dollar reserves, Hong Kong’s law covers stablecoins pegged to any official currency—including the RMB—and allows issuers to hold reserves in those currencies. This regulatory flexibility allows for both onshore (CNY) and offshore (CNH) RMB stablecoins to be launched in Hong Kong. [para. 6]

Nevertheless, despite market optimism about CNH stablecoins, the outlook for RMB internationalization via this channel is less promising than anticipated. [para. 7]

Issuing RMB stablecoins may increase their use in cross-border payments, but the RMB’s share of global transactions remains small due to the entrenched status of the dollar, which has dominated international trade for over seventy years. Without a major external shock, this is unlikely to change quickly. [para. 8]

China’s capital controls further limit the RMB’s international expansion. The credibility and stability of an RMB stablecoin are constrained by China’s regulatory grip on cross-border flows and by unresolved issues between onshore and offshore RMB markets. [para. 9]

RMB stablecoins would also face competition from China’s central bank digital currency (e-CNY) and popular third-party payment platforms like Alipay and WeChat Pay. The e-CNY, as legal tender, is supported by a massive domestic deposit base (over 300 trillion yuan, or $41.5 trillion), dwarfing the overseas RMB bases available to support CNH stablecoins (about 1 trillion yuan). Third-party platforms, while different in structure, currently dominate the payment landscape due to their widespread use and consumer convenience. [para. 10]

In summary, although stablecoins could help advance the internationalization of the RMB, they are not decisive. The process remains largely dependent on how quickly China is willing to liberalize its capital account, and in the current environment, such liberalization is likely to proceed with caution. [para. 11]

[para. 12][para. 13] (Author profile and disclaimer)