According to a report, China may soon issue stablecoin backed by yuan as part of a plan to encourage the wider adoption of the renminbi (official name of China’s currency) in international finance. Sources indicated that the State Council may consider a proposal in the coming days with a plan for a regulatory framework, risk management framework, and an agency role for new digital tokens.
This move would represent a departure from Beijing’s ban on cryptocurrency in 2021. Conversely, yuan-pegged stablecoins would be regulated by the People’s Bank of China (PBOC) and be deployed as a means of cross-border payment, especially with Belt and Road partners and member states of the Shanghai Cooperation Organisation (SCO).
Implementation is likely to focus first on Hong Kong and Shanghai, both of which are developing infrastructure to support digital-currency operations. A group of major Chinese companies including JD.com and Ant Group are urging authorities to speed up the adoption of blockchain when issuing yuan-backed tokens, which they are concerning would combat the dominance of US. dollar-linked stablecoins.
Nonetheless, challenges persist. The stringent capital controls in China – and the possibility of abuse, including money laundering and capital flight – present challenges as well. Moreover, the yuan presently represents a small percentage of global reserves and limits trust and scale.
If allowed, yuan-denominated stablecoins could help China with its long-term strategy to reduce dependence on the dollar and elevate its role in the global financial system.
