RMB Makes a Strong Comeback, Stablecoins Become "Risk Assets"

Over the past six months, the RMB has quietly staged a "comeback."

Offshore RMB (CNH) has risen from above 7.4 in April to 7.06, hitting a one-year high. Amid global currency volatility, the RMB has become one of the strongest-performing currencies in the Asian market.

Some are happy while others are not—those who once firmly believed the RMB would break 7.3 are being forced to close short positions, while long-term holders of USD, including those holding shadow dollars like USDT, have passively "lost" (in RMB terms).

Why is the RMB strengthening at this moment? Can it last?

Market-Driven Buying

In the past, when talking about RMB appreciation, people often said "the central bank stepped in." However, this round of RMB appreciation is different from previous policy-driven rallies—it's the result of market forces. Why say this? Because the data shows that changes in the closing price are the main factor for the adjustment in the RMB central parity rate.

A quick explainer: There are two key RMB exchange rates each day:

• Closing price: The final market price driven by real buying and selling
• Central parity rate: The "reference rate" announced by the central bank the next morning to guide that day's trading

If this round of RMB appreciation was mainly propped up by policy, you would see the central parity rate being set much stronger in advance, but the closing price would remain weak, indicating the market isn’t buying it.

But this time, it’s the opposite—the closing price rose first, and the central parity rate was only adjusted upward in response, showing that market funds are genuinely buying the RMB.

The biggest factor driving RMB appreciation is external: the persistently weakening USD has led to passive RMB appreciation. So far this year, the US Dollar Index has fallen nearly 10%. On one hand, US employment and retail data continue to weaken; on the other, expectations for USD rate cuts keep intensifying, triggering concentrated unwinding of carry trades.

The USD’s "passive weakening" has led to a broad rebound in emerging market currencies globally, with the RMB standing out. As the Fed further cuts rates, the RMB still has room to appreciate.

If the above is the RMB’s "passive appreciation," then changes in the A-share market provide a second, "active appreciation" logic chain. Since August this year, A-shares have surged—Shanghai Composite broke 4,000 points, hitting a decade high, especially in tech stocks represented by chips and CPOs, which have soared.

Chinese assets have become significantly more attractive, foreign risk appetite is returning, and as Chinese assets become more appealing to global funds, the RMB naturally appreciates more easily. As the USD weakens and the RMB rises, renewed interest in settlement and hedging increases demand for RMB.

Since the beginning of this year, real demand for RMB in foreign trade has risen rapidly. The net trade settlement rate jumped from 23.9% at the start of the year to 54.8% in July. The hedging rate (forward settlement contracts/foreign currency income) rose to 10%, a one-year high. What does this mean? Companies are willing to exchange dollars for RMB and are willing to lock in future RMB exchange rates, betting on future appreciation.

In summary, this round of RMB strength is the result of a "triple force": the USD entering a downward cycle, causing passive RMB appreciation; Chinese assets undergoing a "valuation recovery cycle," leading to continued "active appreciation" of the RMB; and strong real-economy demand for RMB settlement. These three forces reinforce each other, forming a closed loop for RMB appreciation.

A-Shares Benefit

In the short term, RMB appreciation may pressure exports, but in the long run, it benefits the stock market. In recent years, expectations of RMB depreciation have acted as a "hidden cost" suppressing overseas capital. Now, that cost is disappearing.

Especially with USD rate cuts, large amounts of capital are flowing globally in search of better investment opportunities. Recent data released by the State Administration of Foreign Exchange shows that in the first half of 2025, net foreign purchases of domestic stocks and funds reached $10.1 billion, reversing the net selling trend of the past two years. In particular, blue-chip state-owned enterprises in dividends, telecom, power, utilities, and AI + semiconductor leaders will be the main beneficiaries.

According to a Goldman Sachs report, Chinese stocks often perform well when the currency appreciates, with stock returns showing positive correlation and beta to the RMB exchange rate (both bilateral and basket).

Specifically, since 2012, the average FX/stock correlation and beta have been 35% and 1.9, respectively, indicating that stocks trade positively 66% of the time when the RMB strengthens. RMB appreciation may benefit Chinese stocks through accounting, fundamentals, risk premium, and portfolio flow channels.

Goldman estimates that, all else being equal, every 1% appreciation of the RMB against the USD could drive a 3% rise in Chinese stocks, including currency gains.

Holding U Is Risky

USDT has long been the "standard currency" for Chinese retail investors to interact with the on-chain world, as well as a persistent shadow dollar. But this round of RMB appreciation, combined with policy moves, is making stablecoin holding riskier.

Long-term RMB appreciation means that holding USDT long-term equals bearing USD depreciation losses over time. In addition, recently the central bank and twelve other departments have jointly cracked down on virtual currency trading and speculation, officially bringing stablecoins under virtual currency regulation, including key monitoring of financial and FX risks. Virtual currency-for-FX swaps will be a key target for future crackdowns—in other words, USDT is now under the "foreign exchange management framework."

This will increase the cost and risk of exchanging USDT for RMB OTC, reducing USDT's "RMB liquidity." As a result, the USDT/RMB rate has recently dropped below 7.

Amid the crypto bear market, investors don’t want to directly touch high-volatility crypto assets, but also want to avoid USDT’s regulatory and FX risks. So they are shifting to a new area: using stablecoins to invest in non-crypto assets, such as on-chain US stocks and on-chain gold, which still hedge against the USD down cycle and are more convenient.

A large number of investors are being forced to transition from "stablecoin savings" to "on-chain dollar asset savings." This will have a profound impact on the crypto market.