Key Takeaways
- Chinese tech giants have applied for a license for an offshore Yuan stablecoin.
- Sources say that Chinese policymakers are now receptive to the idea of a yuan stablecoin.
- Currently, exporters are reportedly using Tether, which experts believe is undermining the yuan in trade settlements.
China’s tech giants, JD.com and Alibaba affiliate Ant Group, are reportedly urging the central bank to authorize an offshore Yuan stablecoin as a means of countering the growing trend toward US Dollar-pegged stablecoins.
According to sources with direct knowledge of the ongoing discussions, the two firms have proposed that China allow the launch of an Offshore Yuan stablecoin in Hong Kong. They argued that such a digital asset would help promote the global use of the Chinese Yuan and counter the USD’s growing digital influence.
Potential for an Offshore Yuan Stablecoin
Commenting on the possibility of development, Huang Yiping, dean of Peking University’s National School of Development, noted that it was worth exploring the potential for an offshore Yuan stablecoin as a means of becoming part of the emerging financial innovation. He stated that as long as the attendant risks remained under control, such as onshore regulations on digital assets, they remained stringent.
Noting that the use of stablecoins now accounted for over 90 percent of the currency intermediaries in virtual asset transactions, Huang added that there had been a sharp increase over the past four to five years. Huang added:
“The development of global digital assets is evolving into a trend, where risks and opportunities coexist.”
Existing Stablecoins Are Pegged To the USD
The decision by the Chinese tech giants to seek licensing for an offshore Yuan stablecoin comes at a time when over 90% of the existing stablecoins are pegged to the USD. Huang also serves as a director of Peking University’s Institute of Digital Finance and a member of the Monetary Policy Committee of the People’s Bank of China, the country’s central bank. He said economies around the world are now faced with critical questions — whether each should issue its stablecoins and whether the growing prominence of stablecoins could trigger a renewed wave of dollarization in the global financial system.
On June 17, the US Senate passed the GENIUS Act. If passed by the House and signed into law by the US president, the bill would establish a federal framework for regulating stablecoins in the United States. This came after Hong Kong made history on May 30 by enacting the world’s first dedicated legislation specifically governing fiat-referenced stablecoins — the Stablecoins Ordinance, with a commencement date of Aug 1.
Conclusion
China’s tacit support for the city-state’s efforts to develop into a crypto hub raises hopes that a sizable stablecoin market could emerge in Hong Kong, providing a legal channel for Chinese businesses to access the market. Beijing has maintained a strict ban on cryptocurrency trading on the mainland; however, the probable development of an offshore Yuan stablecoin has sparked excitement in the market, suggesting that a mainland company may be able to tap into the Hong Kong crypto market.
Frequently Asked Questions
What are stablecoins?
Stablecoins are a type of crypto asset that is tied to the value of another asset, such as the US dollar or gold. They were initially created as a way for crypto investors to store their money, but have gained popularity in recent years for their use in digital payments.
What are the principles of stablecoin?
Stablecoins are digital units of value that rely on stabilization tools to maintain a stable value relative to one or several official currencies or other assets (including crypto-assets)
What are the four types of stablecoins?
There are four main types of stablecoins in circulation: fiat-backed, commodity-backed, crypto-backed, and algorithmic.
