The battle between digital RMB and stablecoins has just begun

Mobile Payment Network News: "In response to the defects of large price fluctuations of cryptocurrencies, some commercial institutions have launched so-called "stablecoins" in an attempt to maintain currency stability by anchoring with sovereign currencies or related assets. Some commercial institutions plan to launch global stablecoins, which will bring many risks and challenges to the international monetary system, payment and clearing system, monetary policy, cross-border capital flow management, etc."

In July 2021, the "White Paper on the Research and Development Progress of China's Digital RMB" released by the Digital RMB Research and Development Working Group of the People's Bank of China described the development of stablecoins in this way. The rapid development of cryptocurrencies, especially global stablecoins, has brought challenges to the coinage rights of governments around the world, which has also become a basic background for China to develop digital RMB.

Soon after, in September 2021, the People's Bank of China, the Ministry of Public Security, the Supreme People's Court, the State Administration of Foreign Exchange and other ten departments jointly issued the "Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading Speculation", which characterized encrypted digital currency-related businesses as illegal financial activities.

At that time, many people believed that the confrontation between digital RMB and stablecoins had ended, at least in mainland China. However, times have changed, global geopolitics has changed dramatically, small-scale trade has grown by leaps and bounds, and the digital payment industry has undergone tremendous changes. The battle between digital RMB and stablecoins has just begun.

The rise of stablecoins

Stablecoins were originally a form of currency connected to Web3. Only after legal currency is exchanged for stablecoins can virtual assets be traded more conveniently.

Stablecoin payments based on blockchain technology have the advantages of fast settlement speed, low cost, and transparency, which have enabled payment practitioners with a traditional payment perspective to discover its payment value in the real world. More and more stablecoin payments are being used in goods trade and retail payments, and there is no lack of participation from traditional payment giants.

In Q1 2021, Visa announced its cryptocurrency plan, planning to work with wallets and exchanges to enable Visa users to purchase crypto assets and allow users to use fiat currency to purchase cryptocurrencies or cash out cryptocurrencies for fiat currency. In November 2021, Mastercard worked with three cryptocurrency service providers to develop crypto payment cards. Mastercard expanded its "Engage" program to help companies bring cryptocurrency cards to market.

With the support of the two major international card organizations, payment companies including Block (formerly Square), Stripe, PayPal, and Nuvei have begun to actively participate in stablecoin payments and have carried out actual business actions to participate in the wave of stablecoin development.

In recent years, governments in some countries or regions have also shown a more positive attitude towards the development of the cryptocurrency market.

Recently, the Monetary Authority of Singapore (MAS) stated that stablecoins have the potential to become a widely adopted means of payment. As long as there are regulatory provisions to prevent crypto assets from deviating from their pegged values, stablecoins have great potential.

In addition, Hong Kong, China is actively promoting the formulation of the "Stablecoin Bill", which is expected to be released in 2025, which is a recognition and regulation of stablecoin payments.

On December 30, 2024, the EU's "Market in Crypto-Assets (MiCA)" officially came into effect, and the euro stablecoin has been recognized.

From the perspective of market financing, it is also relatively positive. Relevant research reports show that in 2024, cryptocurrency companies in Southeast Asia raised US$325 million in financing, an overall increase of 20%.

As the global commodity factory, China's overseas companies have also felt the impact of stablecoin payments. When many parties require stablecoin payments, completing stablecoin settlement overseas has also become the new normal. In addition, Mobile Payment Network learned that the regulatory authorities in the southeastern coastal areas with developed economy and trade are also more open to the stablecoin industry, with the premise of benefiting the development of real economy and trade, and the atmosphere is relatively less tense.

However, for stablecoins, the overall environment in mainland China is still strictly regulated.

Stablecoin restricted areas

Since "anti-fraud" has become a national policy, news about using USDT stablecoin payments as a means of money laundering has emerged in an endless stream, and stablecoins such as USDT have also become a common acceptance method for underground banks.

"Don't do any stablecoin acceptance business related to the RMB." An industry insider who closely observes the development of the stablecoin market revealed to Mobile Payment Network.

In May 2023, the CNHC Group (later renamed Trust Reserve), the issuer of the CNHC stablecoin pegged 1:1 to the offshore RMB, lost contact since the afternoon of May 29. At that time, multiple sources revealed that the team had been taken away by the police and detained, and some employees' families had received notices.

According to official information, Trust Reserve's products include the offshore RMB stablecoin CNHC and the Hong Kong dollar stablecoin HKDC. People familiar with the matter said that the company's stablecoin business has not actually been promoted on a large scale, but the company has another cross-border payment business, and the case may be affected by the payment business.

This incident caused an uproar in the industry, which also shows that the acceptance business of stablecoins and RMB is a forbidden area in mainland China.

In December 2024, multiple authoritative media reported an illegal business crime involving stablecoins. Three young men born after 1995 used virtual currency to provide cross-border exchange and payment services to earn exchange rate differences and realize the value conversion of foreign exchange and RMB, which is a disguised foreign exchange transaction and constitutes the crime of illegal business operation. The three were sentenced to fixed-term imprisonment of five years to one year and six months by the court for the crime of illegal business operation, and each was fined.

This case also more clearly delineated the regulatory red line that stablecoins cannot accept RMB.

In addition, the State Administration of Foreign Exchange recently issued the "Management Measures for Bank Foreign Exchange Risk Transaction Reports (Trial)", which included illegal cross-border financial activities of virtual currencies in foreign exchange risk transactions, and also included false trade, false investment and financing, underground banks, cross-border gambling, and fraudulent export tax rebates.

If a bank discovers or has reasonable reasons to suspect that its domestic and overseas institutions and individual customers have these foreign exchange risk transactions, it shall monitor foreign exchange risk transaction information and submit foreign exchange risk transaction reports.

The National Procurator General Conference held on January 13 made it clear that the procuratorate will intensify the punishment of money laundering crimes and crack down on the illegal transfer of assets overseas using virtual currency in accordance with the law.

Mainland China has become a forbidden zone for stablecoins. The digital RMB has achieved rapid development in recent years, but the competition with stablecoins has just begun.

Cross-border exploration of digital RMB

Survey data from 2022 show that 105 countries and regions in the world are now exploring their own central bank digital currencies (CBDCs), of which 10 countries and regions have officially launched their own central bank digital currencies, and most of them are small countries.

In 2023, the 2022 Central Bank Digital Currency and Cryptocurrency Industry Survey Report released by the Bank for International Settlements (BIS) shows that by 2030, there may be 15 retail and 9 wholesale CBDCs in public circulation.

This shows that the development and issuance of CBDCs around the world are slow, and developed countries and large economies are more cautious about CBDCs.

The research progress of the digital RMB is far ahead of the rest of the world.

Official data show that as of the end of July 2024, a total of 180 million personal wallets have been opened by the digital RMB App, and the cumulative transaction amount in the pilot areas has reached 7.3 trillion yuan.

The volume of digital RMB usage is already large enough, but due to the lack of a mature profit mechanism, the sustainability of the industry is still under test. Especially in mainland China, payment services such as WeChat and Alipay have covered all aspects of people's lives, and the use rate of digital RMB is still not optimistic. Cross-border payments have become an important direction for the expansion of digital RMB.

In October 2024, after four years of iterative development and with the joint efforts of multiple parties, the multilateral central bank digital currency bridge (hereinafter referred to as the "currency bridge") project in which the digital RMB participates has developed to the stage where the participating central banks and monetary authorities can independently advance it, and can successfully "graduate" from the Innovation Center of the Bank for International Settlements (BIS).

Prior to this, on June 6, 2024, the currency bridge project entered the minimum viable product (MVP) stage, and the currency bridge participating institutions in the jurisdictions of each participant can conduct real transactions in an orderly manner according to the corresponding procedures based on actual conditions.

At present, the application of stablecoins in the field of cross-border payments is developing rapidly, which will have a certain impact on the cross-border payment development of CBDC.

The "G20 Cross-border Payment Roadmap" released in 2020 shows three important technical directions for improving cross-border payments in the future, namely, considering new multilateral cross-border payment platforms and deployments, promoting the robustness of global stablecoins, and increasing exploration and research on CBDC.

In layman's terms, these three roads are building a new SWIFT, stablecoin cross-border payments, and CBDC cross-border payments. At present, stablecoin payments are standing out.

From the overall data, according to a data released by HashKey Group, an overseas cryptocurrency trading agency, the quarterly stablecoin transfer volume has increased seventeen times in the past four years. On July 17, 2024 alone, the total transaction volume of the entire global stablecoin market reached 87 billion US dollars, accounting for 91.7% of the total cryptocurrency market transaction volume, of which the largest transaction volume stablecoin was USDT, reaching 83.3%.

From the specific scenario, PayPal allows Xoom to carry out cross-border stablecoin payment business, Nuvei provides stablecoin payment solutions for Latin American merchants, and Stripe allows merchants using its platform to accept cryptocurrency payments. This series of payment companies' business actions reveal that stablecoins are penetrating into all aspects of retail business and entering people's daily lives at all levels.

As a leader in CBDC pilots, the digital RMB is still exploring the process of minimizing business with the help of the currency bridge system. Even if cross-border enterprises can directly make cross-border payments through currency bridges in the future, they may also face concerns about the intensity of supervision.

Of course, stablecoins are now also facing compliance challenges. How to be accepted by governments of various countries or regions is also a big problem. The good thing is that Singapore, Hong Kong, China, the European Union, and the United States after Trump took office will all legislate on stablecoins to correct their name.

It is worth mentioning that more than 99% of the current stablecoin market is anchored to the US dollar, which is a large "reservoir" of US debt. This is also an important reason why the United States has a friendly attitude towards stablecoins. From this perspective, it is better to say that the digital RMB is not against stablecoins, but the US dollar system behind them.

Old wine in new bottles, the world is undergoing drastic changes.