The RMB strikes back strongly, stablecoins become "risky assets"
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The RMB strikes back strongly, stablecoins become "risky assets"
As the Federal Reserve continues its rate cuts, the RMB still has room for further appreciation.
Navigating Web3 tides with focused insightsBy Liam, TechFlow
In the past six months, the renminbi has quietly achieved a "comeback."
The offshore renminbi (CNH) has risen from above 7.4 in April to 7.06, reaching its highest level in a year. Against a backdrop of global currency volatility, the renminbi has become one of Asia's best-performing currencies.
While some celebrate, others worry. Short-sellers who firmly believed the renminbi would break through 7.3 have been forced to cover their positions. Investors holding long-term U.S. dollars—or shadow dollars like USDT—have incurred passive "losses" when measured in renminbi.
Why is the renminbi strengthening at this moment? And can this trend continue?
Driven by Market Demand
In the past, when people talked about RMB appreciation, they often said "the central bank stepped in." However, this round of RMB strengthening differs significantly—it’s not primarily policy-driven but rather the result of natural market choices.
Why do we say that?
Data shows that changes in the closing price have been the main contributor to the upward adjustment of the central parity rate.
Here’s a quick explanation: there are two key prices for the daily RMB exchange rate:
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Closing price: the final market price determined by actual buying and selling
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Central parity rate: the "reference rate" announced by the central bank each morning, guiding trading for the day
If this appreciation were mainly driven by policy intervention, we'd see the central parity rate being set much stronger in advance, while the closing price remains weak—indicating lack of market support.
This time it's the opposite: the closing price rose first, and the central parity rate merely followed suit with an upward adjustment, indicating real market capital is buying the RMB.
The first major factor behind RMB appreciation comes externally—the relentless decline of the U.S. dollar has led to passive RMB strengthening.
Since the beginning of the year, the U.S. Dollar Index has fallen nearly 10%.
On one hand, U.S. employment and retail data have continued to weaken; on the other, expectations for Fed rate cuts have intensified, triggering concentrated unwinding of carry trades.
The dollar’s “passive weakening” has led to a broad rebound in emerging market currencies, with the RMB standing out the most.
As the Fed continues cutting rates, the RMB still has room for further appreciation.
If the above represents the RMB’s "passive appreciation," then changes in China’s A-shares provide a second, "active appreciation" logic chain.
Since August this year, A-shares have strengthened notably, with the Shanghai Composite breaking 4,000 points, hitting a near-decade high. Technology stocks, particularly chips and CPO, have seen astonishing gains.
The attractiveness of Chinese assets has significantly increased, and foreign investor risk appetite is returning. As Chinese assets become more capable of attracting global capital, the RMB naturally finds it easier to appreciate.
With the dollar weakening and the RMB rising, renewed willingness for foreign exchange settlement and hedging also boosts RMB demand.
Since the beginning of the year, real RMB demand in foreign trade markets has rapidly increased.
The net FX settlement ratio has climbed from 23.9% at the start of the year to 54.8% in July, while the hedging ratio (forward FX settlement contracts / foreign currency income) reached 10%, a one-year high.
What does this mean? Companies are willing to convert U.S. dollars into RMB, and they’re locking in future RMB exchange rates—signaling bullish sentiment.
In summary, this round of RMB strength results from a “triple synergy”:
The U.S. dollar enters a downward cycle, leading to passive RMB appreciation.
Chinese assets enter a “valuation recovery phase,” pushing the RMB higher through “active appreciation.”
At the real economy level, corporate FX settlement demand is strong.
These three forces reinforce each other, forming a self-reinforcing cycle for RMB appreciation.
Positive for A-Shares
In the short term, RMB appreciation may pressure exports, but it benefits equities in the long run.
In recent years, expectations of RMB depreciation acted as a hidden cost suppressing overseas capital inflows.
Now, this cost is disappearing. Especially amid dollar rate cuts, large amounts of capital are starting to flow globally in search of better investment opportunities.
Recent data from the State Administration of Foreign Exchange shows that in the first half of 2025, foreign investors net purchased $10.1 billion worth of domestic stocks and funds, reversing two years of net selling.
Particularly poised to benefit are dividend-paying SOEs, telecoms, power, utilities, and sector leaders in AI + semiconductors.
According to a Goldman Sachs report, Chinese equities tend to perform well during currency appreciation, showing positive correlation and beta with the RMB exchange rate (both bilateral and basket-based).
Specifically, since 2012, average forex/equity correlation and beta have been 35% and 1.9 respectively, indicating equities moved positively 66% of the time when the RMB strengthened.
RMB appreciation could benefit Chinese stocks through accounting effects, fundamentals, risk premiums, and portfolio flows. Goldman estimates that, all else equal, every 1% appreciation of the RMB against the dollar could boost Chinese equities by 3%, includingforeign exchange gains.
Holding USDT Carries Risk
For years, USDT has served as the “standard currency” for Chinese retail investors interacting with the on-chain world—and as a de facto shadow dollar. But now, combined with RMB appreciation and shifting policy, holding stablecoins carries new risks.
Long-term RMB appreciation means holding USDT long-term equals bearing ongoing losses from dollar depreciation.
Secondly, recently the PBOC and twelve other departments jointly cracked down on cryptocurrency trading speculation, officially bringing stablecoins under the virtual currency regulatory framework, including close monitoring of financial and foreign exchange risks. Currency exchange via virtual currencies is now a key enforcement target—in other words, USDT has been incorporated into the “foreign exchange management framework.”
This increases the cost and risk of converting USDT to RMB over-the-counter, reducing USDT’s “RMB liquidity.” As a result, the USDT-to-RMB exchange rate has recently fallen below 7.
During this crypto bear market, investors want to avoid direct exposure to highly volatile crypto assets, yet also wish to mitigate USDT’s regulatory and exchange rate risks. They are turning instead to a new frontier: using stablecoins to invest in non-crypto assets such as on-chain U.S. stocks and on-chain gold—still hedging against the dollar downturn, but more conveniently.
A growing number of investors are being forced to shift from “stablecoin savings” to “on-chain dollar asset savings.”
This shift will have profound implications for the crypto market.
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