Key Takeaways
- China is already rethinking its crypto policy and has warmed up to stablecoins.
- The government has asked Chinese authorities to start the development of a Yuan-backed stablecoin without delay.
- The Chinese government is already using Hong Kong as a testing ground for its stablecoin.
In what some experts believe could be FOMO (fear of missing out), China may finally be warming up to stablecoin as a result of the rapid rise in the adoption of dollar-pegged stablecoins.
According to a report in the South China Morning Post, there were signs that China was rethinking its digital currency strategy. The article states that the government had reportedly urged policymakers to stop further delays and instead focus on “adapting to the trend of stablecoins.”
Fear of a US Head Start
The statement called on Chinese authorities to begin developing yuan-backed stablecoins and start laying out regulations. This occurred as the US recently passed a stablecoin bill, granting regulated issuers the green light to mint dollar-pegged stablecoins. Chinese officials and analysts may be concerned that the US head start could deepen the dollar’s dominance in digital trade, leaving the yuan playing catch-up.
The report called stablecoins an “emerging payment tool” that, while carrying risks, offered too many advantages to ignore. Citing a broad consensus among people close to the discussions, the report stated:
“The development of yuan-backed stablecoins should be sooner rather than later.”
Hong Kong as a Testing Ground
Not to be left behind as the clamor for dollar-pegged stablecoins continues, China is already encouraging Hong Kong, the country’s special administrative region, to become the trailblazer as Asia’s crypto asset hub. The government has recently extended the protection of its securities law to the lawless world of tokens, which are changing hands on public blockchains; the city has been steadily building trust in crypto.
So far, Hong Kong has at least 11 licensed virtual-asset exchanges. Moreover, beginning in August, the city-state will introduce its stablecoin law, which may be utilized by entities such as Standard Chartered Plc and Ant Group, an affiliate of the e-commerce giant Alibaba Group Holding Ltd., to offer Hong Kong dollar coins. JD.com even has a working name for its token: JINGDONG.
Digital Tokens Tied to the Yuan
Already, small Chinese suppliers on JD.com and Alibaba have demonstrated a willingness to accept payments from overseas customers in stablecoins denominated in Hong Kong dollars. Not only will they avoid hefty transfer fees, but they will also know that the transactions have Beijing’s blessing. They will trust their money to be safe, held in custody at a regulated exchange in a city whose currency is pegged to the greenback. There’s a feeling that China could also encourage firms in Belt-and-Road countries to use these instruments. The next step in this journey is likely to be digital tokens tied to the offshore yuan.
Conclusion
Having lost interest or slowed down in the development of retail central bank digital currencies (CBDCs), China has joined many other countries that are developing a taste for fiat currency-pegged stablecoins. For a country that is already embroiled in a trade and technology war with the US, sitting back and waiting to see the success of the proposed dollar-pegged stablecoins may not be what you can expect. The country is already ramping up efforts on a parallel front, the creation of the digital yuan, or e-CNY.
Frequently Asked Questions
What are the main characteristics of a stablecoin in the cryptocurrency market?
Stablecoins are a type of cryptocurrency whose value is pegged to another asset, such as a fiat currency or gold, to maintain a stable price.
Is there a Chinese stablecoin?
Today, stablecoins are not supported within China, but Hong Kong is being used as a testing ground.
What is the most used stablecoin?
Today, Tether (USDT) is by far the largest stablecoin. Released in 2014, USDT is pegged to the US dollar and is available on several major blockchains, including Ethereum, Solana, and Tron.
