Morgan Stanley said Hong Kong dollar stablecoins could help connect China’s digital yuan with global digital assets.

Chief China equity strategist Laura Wang noted that local currency-backed stablecoins may support cross-border investment and boost the yuan’s international use.

Hong Kong’s new stablecoin ordinance, which started this month, enables real-time, low-cost transactions to make cross-border payments easier.

The e-CNY, backed by the People’s Bank of China, is also being tested in Hong Kong for cross-border payments.

Wang added that investors could use Hong Kong dollar stablecoins as a bridge to convert USDT or USDC into e-CNY, and invest in Hong Kong-listed assets or tokenized securities.

She said this could enable yuan-linked capital flows without breaching mainland capital controls and support yuan internationalisation through offshore channels.

🔗 Source: South China Morning Post

🧠 Food for thought

1️⃣ Hong Kong stablecoins represent a new chapter in China’s 15-year currency internationalization strategy

China has been systematically pursuing RMB internationalization since the late 2000s, with the effort accelerating significantly after 20091.

The country established RMB clearing banks in 25 countries by 2020 and built bilateral swap lines with 40 countries12. Cross-border trade settlements reached RMB 5.9 trillion in 2014, representing 22% of China’s total trading volume1.

Despite these efforts, the RMB still holds only 2.5% of international currency usage compared to the US dollar’s 66% dominance as of early 20242. China’s Cross-Border Interbank Payment System processes about $60 billion daily versus $1,800 billion through the US dollar system2.

Hong Kong’s stablecoin ordinance, which became effective August 1, 2025, offers a potentially transformative new pathway3. Unlike previous initiatives that required navigating complex capital controls, stablecoins could provide real-time, low-cost transactions that bypass traditional constraints while maintaining China’s controlled approach to capital flows.

2️⃣ The stablecoin bridge could address fundamental limitations that have constrained RMB growth

Research indicates that RMB internationalization has been hindered by China’s managed exchange rate and capital controls, which limit the attractiveness of RMB assets to international investors2.

Previous analysis suggests that without significant changes to capital controls and exchange rate management, the RMB is unlikely to achieve the same global status as the US dollar4.