China appears to be weighing the launch of a yuan-backed stablecoin, with an initial rollout in Hong Kong and Shanghai, a surprising shift after years of cracking down on crypto while promoting its central bank digital currency, the digital yuan.
In the latest episode of Byte-Sized Insight, Cointelegraph spoke with two leaders analyzing China’s potential move into stablecoins: Martin Chorzempa, senior fellow at the Peterson Institute for International Economics, and Patrick Tan, CEO of blockchain intelligence firm ChainArgos.
China in the stablecoin race
The news, first reported on Wednesday, highlighted Beijing’s ambitions to strengthen the yuan’s role in international finance. Still, experts say the path forward is anything but certain, especially with the track record of its central bank digital currency (CBDC), the digital yuan.
According to Chorzempa, the dominance of Alipay and WeChat Pay in everyday transactions has left little room for China’s CBDC experiment.
That leaves a yuan stablecoin with a different potential role. “I tend to think that probably the most interesting applications of a renminbi [yuan] stablecoin is going to be cross-border payments,” Chorzempa said.
“One of the most interesting things about having renminbi stablecoins floating around is, is this going to allow people to get money out in ways that they weren’t through the banks?”
Related: China Merchants Bank subsidiary launches crypto exchange in Hong Kong
Still, cross-border utility doesn’t erase the credibility gap between the yuan and the US dollar. Chorzempa said:
“China is famously anti-crypto… So the interesting thing with this stablecoin idea is: OK, you have something you call a stablecoin, it’s denominated in renminbi, but is it going to have all the same restrictions and surveillance and controls on it that the current forms of renminbi have?”
“And if the answer is yes,” he said, “it’s probably not going to be that attractive in comparison to something in USD, which is really freely usable.”
Challenging dollar dominance
From a market perspective, the hurdles are just as steep. “Ninety-eight percent of all stablecoins and stablecoin transactions are dollar-based,” said Tan.
“The biggest crypto asset exchanges globally, Binance, OKEx, Bybit, they’re all linked to the Chinese, and what’s the currency of choice on all of these exchanges? It’s always a dollar-backed stablecoin.”
For Tan, the real issue is systemic:…
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