China’s Urgent Call for Stablecoin Development
As the United States forges ahead with regulations for stablecoins, voices in China are increasingly urging the country to not fall behind in the fast-evolving digital currency landscape. According to recent reports from state media, there is a growing consensus among Chinese policymakers that the development of yuan-backed stablecoins needs immediate attention, especially after the U.S. Senate passed legislation that enables regulated issuers to create dollar-pegged digital tokens.
Concerns Over Dollar Dominance
An article by the Securities Times, affiliated with the People’s Daily, emphasized that Chinese regulators must adapt to the surging trend of stablecoins. It posits that yuan-backed solutions could counteract growing concerns about the U.S. dollar’s dominance in digital commerce, potentially leaving the Chinese yuan struggling to keep pace.
This sentiment echoes the broader anxiety among Chinese observers that the U.S. is gaining a significant advantage in the digital economy, potentially exacerbating geopolitical tensions.
Potential Benefits of Yuan-backed Stablecoins
The article characterized stablecoins as a vital emerging payment technology that presents significant benefits, despite inherent risks. Analysts within China assert that establishing a regulatory framework for these yuan-pegged currencies could support Beijing’s ambitions of advancing the yuan as a global currency, promoting international use while managing financial exposure.
Prioritizing Innovation Over Competition
Experts like Liu Xiaochun from the Shanghai Finance Institute suggest that China’s approach should prioritize innovation without directly challenging dollar-backed stablecoins. Instead, he advocates that yuan-based digital tokens should cater to developing economies, gradually increasing the yuan’s presence on the global stage rather than striving for immediate competition with existing dollars.
Hong Kong’s Proactive Approach
In contrast to the hesitance seen in mainland China, Hong Kong has already set plans in motion by preparing to implement a licensing regime for stablecoin issuers. This proactive stance highlights the region’s willingness to embrace digital currencies while the mainland continues to ban cryptocurrency trading, exhibiting a lack of urgency to alter its stance.
Geopolitical Implications of the Dollar-centric Trend
While Washington advances regulations through initiatives like the recently passed GENIUS Act—which establishes a framework for stablecoin issuance and compliance—China’s cautious approach has left experts analyzing the consequences. They note that nearly all existing stablecoins are dollar-pegged, reinforcing the dollar’s international stature and making economic transactions simpler, potentially increasing global demand for U.S. Treasuries.
Nevertheless, analysts express concerns about the geopolitical ramifications of this dollar-centric trend, with some warning that rising tensions and economic issues may eventually loosen the dollar’s grip, providing an opening for competitors like a yuan-backed stablecoin.
Continuing Development of the Digital Yuan
Zhou Xiaochuan, a significant figure in China’s financial landscape, voiced similar concerns at a recent forum, discussing the risks associated with increasing ease of transactions in dollars, termed “dollarization.”
Currently, the market for stablecoins is vast, valued at around $261 billion, with approximately 97% of those being dollar-pegged and bolstered by U.S. Treasuries. Zhu Taihui from the National Institution for Finance and Development advocated for the speedy issuance of offshore yuan-backed stablecoins in Hong Kong, with aspirations to move into China’s free trade zones later.
Simultaneously, the effort to promote the digital yuan, or e-CNY, continues. At the same forum, the governor of the People’s Bank of China announced ambitions to create an international operational base for the digital yuan in Shanghai, reinforcing Beijing’s vision of a diversified global monetary system not solely reliant on the dollar. However, obstacles such as strict capital controls and insufficient international recognition of the yuan remain significant hurdles to its global expansion.
