RMB Internationalization: Stablecoins May Not Be the Game Changer

Bank of America analysts believe stablecoins are unlikely to be a major catalyst for RMB internationalization. They argue that RMB's global prominence is better achieved through bilateral agreements, improving liquidity, and stability. Stablecoins face challenges in user adoption, issuers' profitability, and compliance risks, with potential growth in cross-border payments but limited potential in retail and trading. The analysts see expanding swap lines and local currency settlement as a more effective way to advance RMB internationalization.

Bank of America analysts have expressed skepticism about stablecoins serving as a major catalyst for the internationalization of the Chinese Renminbi (RMB). While stablecoins are seen as a potential tool to boost RMB's global role, the bank argues that they are unlikely to be a significant driver of this process. According to an Investing.com analysis, RMB internationalization is better achieved through bilateral agreements for cross-border settlements in local currencies and improving the currency's liquidity and stability.

The analysts note that stablecoins could potentially enhance the RMB's global prominence by increasing demand and creating a system that bypasses the SWIFT payment network. However, they caution that stablecoins face several challenges, including user adoption, issuers' profitability, and compliance risks. While the most promising use case for stablecoins is in cross-border payments, where they can offer near-instant settlements at a much lower cost, the bank points out that the small size of the offshore CNH pool and volatile blockchain 'gas fees' in high-volume situations pose limitations, the analysis adds.

Beyond cross-border payments, the bank sees limited growth potential for stablecoins in retail and trading due to factors such as China's high mobile payment penetration, the unavailability of crypto trading, and the preference for safer haven currencies for value storage. Additionally, profitability challenges for issuers are highlighted, as short-term government bond yields are just 1-2%, far below levels that support interest-based income models, the Investing.com analysis notes.

The report underscores that the RMB's global acceptance depends on factors like liquidity, stability, and investor confidence, rather than its form. Expanding swap lines and local currency settlement are seen as more effective ways to advance RMB internationalization, according to the Investing.com analysis.

In a separate development, Nigeria has established a working group to explore stablecoin adoption. The Central Bank of Nigeria (CBN) has set up a team to delve into the broader ramifications and implications of adopting a viable framework for stablecoins. This move is part of Nigeria's ongoing efforts to support innovation in the financial sector and strengthen its digital economy, according to a Cryptopolitan report.