Original Title: "Rooted in Shanghai, Blossoming in Hong Kong—The 'Dual-Track Acceleration' of Digital RMB and Offshore RMB Stablecoin"

Original Author: Kai Ye, Huaxia Digital Capital

Introduction

Today, there were some rumors circulating: "JD Ant Group Denied Central Bank Exit from Stablecoin License," and then many internet celebrities quickly deleted their posts, showing a lack of intelligence. Although the Hong Kong stablecoin regulations, combined with new guidelines, have added many restrictions, what is the underlying logic behind this? It is to restrict USD stablecoins, creating space for offshore RMB stablecoins; to limit stablecoin retail users and first expand the stablecoin institutional market.

As for JD Ant Group being rejected by the central bank, it is highly likely due to being rejected for an offshore RMB stablecoin. Joycoin aims to be an HKD stablecoin. The most probable origin of an offshore RMB stablecoin will initially come from Chinese institutions involved in banking business (in Hong Kong, Chinese institutions refer to state-owned financial institutions), rather than JD Ant Group.

From this topic, let's discuss the possibilities of Hong Kong stablecoins, offshore RMB stablecoins, and digital RMB. Here, to avoid causing trouble for regulators, I would like to state that: The plot is purely fictional, so please do not interpret it as truth.

Body

Two days before the official implementation of the Hong Kong "Stablecoin Regulations," Phoenix New Media's Digital Economy Channel interviewed Huaxia Digital Capital to interpret the stablecoin regulations. One question asked was: Please provide a vivid description of the relationship between digital RMB and stablecoins. I used a large tree as a metaphor: the digital RMB and offshore RMB stablecoin are like a new financial tree, rooted in the "black soil" of the Shanghai Lingang Free Trade Zone, with its trunk composed of digital RMB data pulses endorsed by the central bank, its branches stretching in the sea breeze of Hong Kong, bearing the "CNHC" offshore fruits. The growth of this plant is planned, not mechanized, but organically symbiotic. The digital RMB and offshore RMB stablecoin are not substitutes for each other but, through a "dual-track" model, together promote the global circulation of RMB.

Roots, Trunk, and Leaves: Understanding the "Dual-Track" Model

1. Shanghai Roots: Deeply Anchored in the Real Economy

As the largest onshore RMB center, the Shanghai Lingang Free Trade Zone is seen as the roots of this plant, supporting the core ecosystem of the RMB. Large-scale B2B settlement transactions such as cross-border e-commerce, automobile exports, and green energy equipment within the digital fence use digital RMB as the entry point, then convert to CNHC stablecoins in the Hong Kong sandbox through the central bank interface, allowing enterprises to conduct on-chain payments. This model ensures that funds remain within the trade loop, unaffected by external capital flows. Through this method, companies can complete payments within minutes, far exceeding the 2-3 days settlement time required by traditional SWIFT.

The Root System's goal is to inject sufficient liquidity for the RMB stablecoin through these large-scale transactions. It is optimistically projected that by 2030, the scale of cross-border payments could reach 1 trillion RMB, on-chain RWA financing could reach 500 billion RMB, gradually expanding the international influence of the RMB.

2. Digital RMB: Standing as the Central Trunk

The digital RMB is like a sturdy pipeline carrying the RMB's payment network. It connects the root system in Shanghai to the branch in Hong Kong, playing a crucial connecting role. In Shanghai, the digital RMB mainly handles onshore RMB fund borrowing and foreign exchange transactions; once the funds cross borders, they will be batch-converted into CNHC through the central bank interface before entering the overseas market.

This centrally controlled design not only ensures the effectiveness of regulation but also provides a flexible channel for fund flow. Through this "hot and cold swap valve," the central bank can effectively regulate domestic and foreign fund flows while providing enough flexibility to support cross-border payments.

3. Hong Kong CNHC: Global-facing Green Branches

As the largest offshore RMB center in the international financial center, Hong Kong acts like the branches and green leaves of this plant, facing the global market. In addition to serving as the on-chain consensus "note" for RMB-denominated assets, CNHC is also designed as a low-value payment tool suitable for cross-border payments, enabling rapid circulation globally. The requirements of the Hong Kong Monetary Authority are very strict, ensuring that each CNHC is pegged 1:1 to RMB cash or highly liquid instruments and allowing for multi-chain issuance.

Hong Kong's CNHC can not only serve international trade and capital flows but also play a significant role in RMB-denominated assets such as green energy mining power assets, energy and mineral resources, and HKD tokenized settlements. Market research indicates that if CNHC can achieve 4x leverage, it is sufficient to support an annual trade settlement volume of 40 trillion RMB. This allows the RMB stablecoin to gradually compete with USD stablecoins in East Asia, Central Asia, the Middle East corridor, and global trade.

How to Enable the Root System to Provide Nutrients to the CNHC Leaf

The entire fund flow process is like a sophisticated ecosystem, ensuring the liquidity and operability of offshore RMB stablecoins in the international market. The following is a simulated RMB fund circulation process (purely fictional, please do not take it as fact):

(1)  FT Account and Electronic Fence Chain: In the Shanghai Free Trade Zone, the RMB is first converted into exportable digital RMB through the FT account and is regulated.

(2)  Central Bank Cross-border Valve: The central bank conducts identity and trade authenticity verification through the "hot and cold swap valve" to ensure compliance.

(3) Cross-Border Bridge between Shanghai and Hong Kong: Funds from Shanghai's digital RMB are batched into the reserve pool of a Hong Kong custodian bank, converted into CNHC in Hong Kong.

(4) Multi-Chain Simultaneous Minting: Based on the reserve balance, CNHC is simultaneously minted on multiple blockchain platforms by licensed Hong Kong stablecoin issuers, covering Ethereum, Solana, BNB Chain, and others.

(5) Reverse Redemption: Through Hong Kong's clearing bank (Bank of China Hong Kong) or market makers, users can redeem CNHC into digital RMB and repatriate it for domestic use via a four-way valve.

This entire process is akin to the "Three Defense Tunnels" of the financial market, preventing capital outflow and ensuring trade compliance. For eligible enterprises and individuals, this process is almost like "expedited customs clearance."

Dual-Track Regulatory Technology System

To ensure the security and compliance of RMB cross-border fund flows under the "dual-track mode," regulatory authorities in Shanghai and Hong Kong can each construct a rigorous and efficient regulatory technology system:

On the Shanghai side, with "FT Account" and "Electronic Fence" technologies at the core, a dedicated free trade account (FT Account) is established to achieve closed-loop fund movement and precise monitoring within the account. This is complemented by PBOC and commercial banks' collaborative fund inflow and outflow management, ensuring that each cross-border fund transfer is based on genuine trade backgrounds. Simultaneously, the use of Electronic Fence technology enables precise control of fund usage and location tracking, ensuring that funds are only used for compliant cross-border trade payments. The PBOC's cross-border four-way valve in Shanghai is equipped with a "identity authentication and authenticity verification" interface for cross-border funds, conducting per-transaction authenticity and compliance checks before the bulk conversion of digital RMB into CNHC. Leveraging on-chain and off-chain data fusion technology, dynamic real-time risk monitoring is carried out using AI and big data analytics to prevent money laundering and capital flight risks.

On the Hong Kong side, building upon the "Stablecoin Regulation," the Hong Kong Monetary Authority requires stablecoin issuers to establish a strict "Reserve Asset Custody and Transparency Mechanism." This involves designating a local custodian bank (such as Bank of China Hong Kong) to segregate custody of CNHC reserve assets and conduct regular audits. By utilizing the "Proof of Reserve" technology on the blockchain, real-time reconciliation and synchronization of on-chain reserve balances with off-chain custodied funds are achieved. Furthermore, during CNHC's multi-chain issuance process, the immutability of the distributed ledger and on-chain tracking technology, through smart contracts, enable real-time registration, tracking, and permanent traceability of every cross-chain asset transaction, ensuring full transparency and traceability of the fund flow process for regulatory oversight.

Through this comprehensive set of regulatory technology measures, Shanghai and Hong Kong can build a tight cross-border fund regulatory system. Every fund movement on the blockchain can be accurately monitored and traced back to its origin, preventing illegal capital outflow and ensuring efficient cross-border payments and fund security. This dual-domain collaborative regulatory technology innovation provides a solid regulatory foundation and technical support for the future internationalization of the RMB and global circulation of offshore RMB stablecoins.

Significance, Risks, and Challenges of Dual-track System

The dual-track model of "Digital Currency + RMB Stablecoin" is not simply a split into two parts, but a balanced design that considers efficiency and security, central bank regulation and market vitality. From a payment efficiency perspective, a digital RMB system solely led by the central bank is stable and compliant, but due to operating on a permissioned blockchain, its cross-chain capabilities are limited, making it difficult to cover the real-time cross-border transaction needs of the global 24/7 economy. On the other hand, relying entirely on the market-driven offshore RMB stablecoin CNHC may face systemic risks such as reserve asset volatility and risk control failures, which could lead to a confidence crisis if it becomes unpegged.

The dual-track system aims to address this dilemma: the digital RMB acts as the main road, responsible for ensuring the legitimacy, identity compliance, and clean flow of funds; CNHC acts as auxiliary roads and branches, extending rapidly and flexibly at low cost to every corner of the globe with RMB demand. As emphasized by the Bank for International Settlements (BIS): "Central banks are the main trunk, private institutions are the branches," the key to the dual-track system lies in the central bank holding fundamental control while unleashing market forces to expand the boundaries.

However, this architecture is not without challenges. For example, if Hong Kong interest rates fluctuate significantly and reserve asset yields do not keep up, CNHC may be subject to concentrated selling, posing a risk of becoming unpegged. In regions where policies are unclear, the interruption of chain extension may affect trade loops. Additionally, if the central bank-led cross-border system experiences technical malfunctions, the bridge between the dual tracks may also fail. Therefore, the future of the dual-track system is both full of imaginative possibilities and requires multiple safeguards in terms of institutions, technology, and global coordination.

In conclusion, the "Digital RMB and Offshore RMB Stablecoin" dual-track model embodies the delicate balance between financial technology and policy regulation. Shanghai, as the root of the onshore RMB ecosystem, and Hong Kong, as a global offshore RMB financial hub, are forming a strong partnership to drive the gradual global expansion of the offshore RMB stablecoin (CNHC). Despite the technical, policy, and market risks inherent in this process, with clear regulation, effective risk control, and the synergistic effects of technological innovation, the RMB dual-track model is expected to become a highly competitive innovation paradigm in the internationalization of the RMB. Looking ahead, with more global policy coordination and technological improvements, and more global assets priced in offshore RMB stablecoins, the RMB is poised to take a more proactive and critical role in the global digital economy wave.

Huaxia Digital Capital is a digital investment bank focusing on the Real World Asset (RWA) tokenization track, dedicated to market research and education, issuance and investment incubation, RWA asset management platform, digital financial innovation, and other solutions, aiming to build a bridge between real-world assets and the value of the crypto world.

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