Stablecoin law holds promise for e-CNY, cross-border flows: Morgan Stanley

Hong Kong dollar stablecoins could become a key link between China’s digital yuan and top global digital assets, potentially transforming cross-border investment and accelerating yuan internationalisation, according to Morgan Stanley.

Local currency-backed stablecoins could provide a pathway for mainland China’s e-CNY – the country’s only legal digital currency backed by the government – to gain a foothold globally while advancing Beijing’s drive to internationalise its currency and counter US dollar dominance, Laura Wang, the bank’s chief China equity strategist, said in a written interview last week.

“In theory, HKD stablecoins could act as a bridge between e-CNY and global digital assets,” said Wang. International investors could convert the world’s largest stablecoins, USDT and USDC, into Hong Kong dollar stablecoins and then into e-CNY, and invest in Hong Kong-listed assets or tokenised securities, she added.

“This creates a pathway for [yuan]-linked capital flows without violating mainland capital controls,” she said. “It also supports [the yuan] internationalisation through offshore channels.”