Bank of America(US:BAC)2025-10-19 15:58Summary of Key Points from the Conference Call Industry Overview - Industry: Stablecoins and their role in RMB internationalization - Context: The Stablecoin Ordinance in Hong Kong took effect on August 1, 2025, prompting discussions on the potential of stablecoins to enhance the global role of the RMB [1][8][10] Core Insights and Arguments - Potential of Stablecoins: - Stablecoins are viewed as a potential catalyst for RMB internationalization by increasing demand and creating alternatives to the SWIFT payment network [1][9] - However, a cautious stance is maintained due to challenges in user adoption, profitability for issuers, and compliance risks [1][10] - User Adoption: - The primary use case for stablecoins is in cross-border payments, offering lower costs and faster settlements compared to traditional methods [2][22] - Other applications, such as retail payments, base currency for crypto exchanges, and store of value, show limited growth potential due to high mobile payment penetration in China and lack of crypto trading [2][21][32] - Profitability Challenges: - Issuers rely on interest income from reserve assets, which is challenging in China due to low government bond yields (1-2%) compared to the US (around 4%) [3][45][50] - High fees for minting and burning stablecoins could deter adoption, creating a difficult balance for issuers [3][46] - Compliance Issues: - The regulatory environment in Hong Kong emphasizes compliance, requiring real-name verification and record-keeping for at least five years, which may hinder scalability [4][48] - The decentralized nature of stablecoins raises concerns about oversight and KYC/AML compliance [47][49] - Fundamentals of RMB Internationalization: - The global acceptance of RMB is more dependent on liquidity, stability, and investor confidence rather than the form it takes (stablecoin or digital currency) [5][54] - Bilateral agreements for cross-border settlements in local currencies are seen as a more effective strategy for advancing RMB internationalization [5][60] Additional Important Insights - Market Dynamics: - USD stablecoins dominate the global market, accounting for over 95% of the total market cap (~US$280 billion), with USDT and USDC leading [12][13] - The offshore CNH pool is limited, covering only 26% of China's total trade volume, which constrains the potential for RMB-stablecoins [24][28] - Geopolitical Risks: - The reliance on existing blockchains like Ethereum for RMB-stablecoins introduces geographical concentration risks, particularly with validators based in the US and Europe [49][52] - Long-term Outlook: - While RMB-stablecoins may facilitate smoother trade settlements and enhance digital commerce, their overall impact on RMB internationalization is expected to be limited in the near term [57][59] - Current Trends: - The share of cross-border goods trade payments settled in RMB has steadily increased, reaching 25% by the end of 2023, indicating a gradual shift towards RMB usage in international trade [5][63] This summary encapsulates the key points discussed in the conference call regarding the role of stablecoins in RMB internationalization, highlighting both opportunities and challenges within the current regulatory and market landscape.