China seems to be considering the introduction of a yuan-backed stablecoin, starting with initial launches in Hong Kong and Shanghai. This marks a surprising change after years of restricting crypto while championing its central bank digital currency, the digital yuan.
In the most recent episode of Byte-Sized Insight, Cointelegraph engaged with two experts discussing China’s likely venture into stablecoins: Martin Chorzempa, a senior fellow at the Peterson Institute for International Economics, and Patrick Tan, CEO of the blockchain intelligence firm ChainArgos.
China in the stablecoin race
The report, which emerged on Wednesday, underscored Beijing’s aims to enhance the yuan’s standing in global finance. However, experts indicate that the journey ahead is highly uncertain, particularly given the history of its central bank digital currency (CBDC), the digital yuan.
Chorzempa noted that the prevalence of Alipay and WeChat Pay in daily transactions has created limited space for China’s CBDC experiment.
This opens up a different potential avenue for a yuan stablecoin. “I believe the most intriguing uses for a renminbi [yuan] stablecoin will revolve around cross-border payments,” Chorzempa remarked. “One of the most fascinating aspects of having renminbi stablecoins in circulation is whether this will enable individuals to transfer money in ways that traditional banks do not allow.”
Related: China Merchants Bank subsidiary launches crypto exchange in Hong Kong
Nonetheless, the benefits of cross-border utility do not eliminate the credibility issues facing the yuan in comparison to the US dollar. Chorzempa stated:
“China is notoriously anti-crypto… Thus, the interesting aspect of this stablecoin concept is: So, you have something termed a stablecoin, denominated in renminbi, but will it be subjected to the same restrictions, oversight, and controls that the existing forms of renminbi are?”
“And if the response is affirmative,” he continued, “it likely won’t be as appealing when compared to something in USD, which is genuinely freely usable.”
Challenging dollar dominance
From a market viewpoint, the challenges are equally daunting. “Ninety-eight percent of all stablecoins and stablecoin transactions are dollar-based,” Tan noted.
“The largest crypto asset exchanges globally, such as Binance, OKEx, and Bybit, are all linked to Chinese transactions, and what’s the preferred currency on these exchanges? It’s always a dollar-backed stablecoin.”
According to Tan, the core dilemma is systemic: “If China aims to enhance the attractiveness of the digital yuan, it first needs to make the yuan appealing. Achieving that requires significant, substantial systemic political and economic reforms, which, in light of the current situation in China, I believe would be extremely difficult at best.”
Regardless of whether China’s stablecoin initiative succeeds or falters, it conveys a clear message: Stablecoins have transcended their role as mere crypto infrastructure; they’ve emerged as instruments in a broader geopolitical struggle for the future of currency.
Listen to the entire episode of Byte-Sized Insight for the full interview on Cointelegraph’s Podcasts page, Apple Podcasts or Spotify. And remember to explore Cointelegraph’s complete range of other shows!
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