The RMB makes a strong comeback, and stablecoins have become "risky assets"

Written by: Liam, TechFlow

In 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, reaching a new high in the past year. Against the backdrop of global currency volatility, the RMB has become one of the strongest performing currencies in the Asian market.

Some are happy while others are worried. Those who once firmly believed the RMB would break 7.3 and went short have been forced to close their positions. Long-term holders of the USD, including investors holding shadow dollars like USDT, have suffered “passive losses” (when calculated in RMB).

Why is the RMB strengthening at this point in time? Can it be sustained?

Driven by Market Buying

In the past, when people talked about RMB appreciation, they often said “the central bank stepped in.” However, this round of RMB appreciation is different from previous, more policy-driven moves; it is a result of natural market selection.

Why do we say this?

Because, according to the data, changes in the closing price are the main contributors to the RMB central parity rate being adjusted upward.

A quick explainer: every day, there are two key prices for the RMB exchange rate:

Closing Price: The final price driven by real market buying and selling

Central Parity Rate: The “reference price” announced by the central bank the next morning to guide the day’s trading

If this round of RMB appreciation were mainly due to forced policy intervention, you would see the central parity rate being strengthened ahead of time, but the closing price would remain weak, indicating that the market is not buying it.

But this time, it’s the exact opposite—the closing price rose first, and the central parity rate was only “adjusted upward along the trend” based on the higher closing price. This indicates that market funds are genuinely buying RMB.

The number one driver of RMB appreciation comes from outside: the relentlessly falling US dollar has caused the RMB to appreciate passively.

Since the beginning of this year, the US Dollar Index has fallen by nearly 10%.

On one hand, US employment and retail data have continued to weaken; on the other, expectations for US rate cuts have strengthened, triggering massive unwinding by arbitrage funds.

The USD’s “passive weakening” has led to a broad rebound in emerging market currencies, with the RMB standing out.

As the Fed continues to cut rates, the RMB still has room for further appreciation.

If the above is the “passive appreciation” of the RMB, then the changes in the A-shares provide a second “active appreciation” logic chain.

Since August this year, A-shares have strengthened significantly, with the Shanghai Composite breaking through 4,000 points—a near ten-year high—especially in tech stocks led by chips and CPO, which have seen impressive gains.

The attractiveness of Chinese assets has risen significantly, risk appetite among foreign investors is returning, and as Chinese assets become more appealing to global capital, the RMB naturally appreciates more easily.

As the USD weakens and the RMB rises, revived demand for foreign exchange settlement and hedging also boosts RMB demand.

This year, in the foreign trade market, real demand for the RMB has risen rapidly.

The net settlement rate for trade has increased from 23.9% at the beginning of the year to 54.8% in July, while the hedging rate (forward settlement contract amount / foreign currency income) has risen to 10%, a new high for the past year.

What does this mean? Enterprises are willing to exchange USD for RMB, and they are willing to lock in future RMB exchange rates, showing bullish sentiment.

In summary, this round of RMB strength is the result of a “triple synergy”:

1. The USD has entered a downward cycle, making the RMB rise passively.
2. Chinese assets have entered a “valuation recovery cycle,” continuing the RMB’s “active appreciation.”
3. On the real economy side, corporate demand for settlement is strong.

These three forces reinforce each other, forming a closed loop for RMB appreciation.

Benefit for A-shares

In the short term, RMB appreciation will put pressure on exports, but in the long run, it benefits the stock market.

In past years, expectations of RMB depreciation have been an “implicit cost” suppressing overseas funds.

Now, this cost is disappearing. Especially against the backdrop of US rate cuts, large amounts of capital are flowing globally, seeking better investment opportunities.

According to recent data from the State Administration of Foreign Exchange, 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 previous two years.

Particularly, blue-chip central SOEs, telecom, power, utilities, and AI + semiconductor leaders in their segments will be the first beneficiaries.

According to a Goldman Sachs report, Chinese stocks tend to perform well when the currency rises. Stock returns are positively correlated with the RMB exchange rate (both bilaterally and in baskets), and the beta coefficient is positive.

Specifically, since 2012, the average forex/stock correlation and beta coefficient have been 35% and 1.9, respectively, indicating that when the RMB strengthens, stocks trade positively 66% of the time.

RMB appreciation may benefit Chinese stocks through accounting, fundamentals, risk premium, and portfolio flow channels. Goldman Sachs estimates that, all else being equal, for every 1% appreciation of the RMB against the USD, China’s stock market could rise by 3%, including exchange gains.

Risks of Holding USDT

USDT has long been the “standard currency” for Chinese retail investors to interact with the on-chain world and a persistent shadow dollar, but this round of RMB appreciation, combined with policy trends, means that holding stablecoins now comes with risk.

Long-term RMB appreciation means that holding USDT long-term equals bearing the loss of USD depreciation long-term.

Secondly, recently, the central bank and 13 other departments have jointly cracked down on speculative virtual currency trading, officially bringing stablecoins into the scope of virtual currency regulation—including close monitoring of financial and forex risks, with crypto-for-forex exchanges as a key focus for enforcement. In other words, USDT has been included in the “foreign exchange management framework.”

This will increase the cost and risk of converting USDT to RMB over the counter and reduce the “RMB liquidity” of USDT. As a result, the USDT/RMB exchange rate has recently dropped below 7.

In the crypto bear market, investors do not want direct exposure to high-volatility crypto assets, but also want to avoid the regulatory and exchange rate risks of USDT. They are turning to a new field: 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 far-reaching effects on the crypto market.