China’s Initiative for Yuan-Backed Stablecoins

In a significant potential shift from its 2021 stance on cryptocurrency, China is contemplating the broader use of yuan-backed stablecoins beyond its borders. This initiative could mark a pivotal change in China’s digital currency policy, outlining specific goals, risk management strategies, and regulatory responsibilities.

The State Council is anticipated to evaluate a comprehensive plan this month, detailing responsibilities and guidelines for executing this strategy.

Pilot Programs in Hong Kong and Shanghai

According to sources familiar with the developments, Beijing has designated Hong Kong and Shanghai as pilot cities for testing these new regulations. Hong Kong has already enacted its stablecoin legislation as of August 1, while Shanghai is in the process of establishing a hub for the digital yuan.

Senior officials are expected to convene a study session soon to define the permissible extent of stablecoin usage and establish regulatory boundaries. Huang Yiping, an advisor to the People’s Bank of China, has indicated that launching an offshore yuan stablecoin in Hong Kong is a feasible prospect.

Global Market Dynamics and Implications

As reported by the Bank for International Settlements, stablecoins pegged to fiat currencies like the US dollar currently dominate the global market. The market, currently valued at approximately $245 billion, is projected by Standard Chartered to potentially reach $2 trillion by 2028.

The yuan’s share in global transactions decreased to nearly 3% in June, contrasting with the US dollar’s commanding 47% market share. Former US President Donald Trump has expressed support for stablecoins and advocates for establishing a regulatory framework in the United States.

Timeline for Implementation

Details regarding the rollout of the stablecoin initiative may emerge in the coming weeks. There is speculation that Beijing might discuss this topic with international trade partners during the Shanghai Cooperation Organization Summit scheduled for August 31 to September 1 in Tianjin.

Currently, the cryptocurrency market capitalization stands at $3.75 trillion, indicating substantial interest and investment in digital currencies worldwide.

Challenges and Policy Considerations

Experts caution that China’s stringent capital controls and significant trade surpluses could pose challenges to the effective cross-border utilization of yuan-linked stablecoins. The forthcoming roadmap is expected to incorporate measures for risk management and assign responsibilities to relevant domestic institutions, including the People’s Bank of China.