Some investors see stablecoins as a way to boost the yuan's global role, but Bank of America analysts said they are unlikely to be a major catalyst for the Chinese currency's internationalization.
Despite some investors viewing stablecoins as a way to boost RMB’s global role, analysts at Bank of America said in a note that they are unlikely to be a major catalyst for the internationalization of China’s currency.
The bank argued that “RMB internationalization is better achieved through bilateral agreements for cross-border settlements in local currencies and improving RMB’s liquidity and stability.”
The analysts explained that while some see stablecoins as a way to improve the currency’s global prominence by increasing demand and “creating a system bypassing the SWIFT payment network,” it takes a more cautious view.
The analysts said that “despite some growth potential, stablecoins face challenges in user adoption, issuers’ profitability, and compliance risks.”
The bank added that the “most promising use case is in cross-border payments,” where stablecoins can offer “near-instant settlements at a much lower cost.”
However, BofA noted that “the small size of the offshore CNH pool and volatile blockchain ‘gas fees’ in high-volume situations pose limitations.”
Beyond payments, the bank sees limited growth potential for stablecoins in retail and trading, given “China’s high mobile payment penetration, unavailability of crypto trading, and preference for other relative safer haven currencies for value storing purposes.”
The report also pointed to profitability challenges for issuers, as “short-term government bond yields are just 1-2%,” far below levels that support interest-based income models.
Ultimately, BofA said “the RMB’s global acceptance depends on factors like liquidity, stability, and investor confidence, rather than its form.”
The bank added that expanding swap lines and local currency settlement remain a more effective way to advance RMB internationalization.