As the cryptocurrency market experiences rapid changes, a significant piece of news has once again ignited the global financial community! On August 20, Reuters reported that the Chinese government is considering allowing a yuan-backed stablecoin to promote the global use of the yuan. If approved, this would mark a major shift in China's stance on digital assets, as the country banned cryptocurrency trading and mining in September 2021. This historic policy reversal not only suggests a new digital path for the internationalization of the yuan but could also pose a direct challenge to the dollar's dominance in the stablecoin market.
- China's Major Policy Reversal: The Yuan Stablecoin is on the Horizon
Reuters disclosed: Sources revealed to Reuters that the Chinese government will review a roadmap that includes stablecoins pegged to the yuan to enhance the internationalization of the yuan. This represents a significant shift in China's stance on digital assets, following the ban on cryptocurrency trading and mining in 2021.
State Council Review: The Chinese State Council is expected to review and possibly approve a roadmap to expand the global use of the yuan in late August. Reports indicate that the plan includes measures to respond to the pace of stablecoin development in the U.S. and guidelines for risk prevention.
High-Level Learning Meeting: A source stated that Chinese senior leaders are expected to hold a special learning meeting as early as the end of this month, focusing on the internationalization of the yuan and the rising global trend of stablecoins. At that meeting, senior leaders may deliver speeches to set the tone for stablecoins and clarify their applications and development boundaries in business.
Priority Hubs: Sources indicated that Hong Kong and Shanghai have been identified as priority hubs for implementing this policy.
- A New Path for Yuan Internationalization: Challenging Dollar Hegemony
China's potential entry into the stablecoin market aligns with its ambition for yuan globalization and helps the yuan compete with major global reserve currencies like the dollar and euro.
Yuan's Global Payment Status: According to Swift data, as of June, the yuan is the sixth most active currency in global payments, accounting for about 2.9% of total global payments. In contrast, the dollar holds a 47.19% market share.
Countering Dollar Dominance: Despite the dollar's 47.2% share of global payments, its role in the stablecoin market is much larger. According to CoinMarketCap, dollar-backed tokens account for nearly 98% of the total market value of stablecoins, which is $288 billion. With former President Donald Trump pledging to expand the dollar's global influence through stablecoins, many jurisdictions worldwide, including China, have expressed concerns.
Financial Innovation Tool: Sources stated that Beijing views financial innovation, particularly stablecoins, as a powerful tool to promote the internationalization of the yuan in response to the growing influence of dollar-backed stablecoins in global finance. The underlying blockchain technology of stablecoins enables low-cost, instant, borderless, and round-the-clock fund transfers, potentially disrupting traditional daily cash flows and cross-border payment systems.
- China's Shift in Attitude Towards Cryptocurrency and Challenges
Policy Reversal: If approved, China's stablecoin usage plan would signify a major shift in its approach to cryptocurrency, following the ban on cryptocurrency trading and mining in September 2021.
Capital Controls: China has long aspired for the yuan to achieve a global currency status similar to that of the dollar or euro, but its strict capital controls and annual trade surpluses of trillions of dollars have hindered this goal. Market participants indicate that these restrictions could also pose a significant obstacle to the development of stablecoins.
Existing Practices: In July, the domestic blockchain platform Conflux launched a new type of stablecoin backed by offshore yuan. Neighboring jurisdictions like Hong Kong have also taken steps to approve stablecoins and launched a dedicated regulatory framework on August 1.
- Characteristics and Risks of the Yuan Stablecoin
Characteristics: The yuan stablecoin is a cryptocurrency pegged 1:1 to the fiat currency yuan (CNY/CNH). It is primarily supported by offshore yuan (CNH), thereby circumventing foreign exchange restrictions in mainland China. Blockchain technology enables instant payments 24/7, facilitating cross-border B2B payments and reducing financing costs.
Risks and Challenges:
Thin Liquidity: Even offshore yuan₮ has a market value of only $2 million. There are slippage issues during large settlements.
Regulatory Uncertainty: Mainland authorities remain strict on crypto assets, concerned about excessive foreign exchange outflows.
Reserve Asset Transparency: The storage locations and audit frequencies of the underlying CNH vary by issuing institution.
Technical Risks: Chain migration and vulnerabilities in cross-chain bridge smart contracts.
Conclusion:
Reuters' disclosure that China is considering launching a yuan-backed stablecoin marks a significant shift in its stance on digital assets. This move not only provides a new digital path for the internationalization of the yuan but could also pose a direct challenge to the dollar's dominance in the stablecoin market. Despite facing challenges such as capital controls and regulatory uncertainty, the accelerated development of the yuan stablecoin suggests that the global monetary system will evolve towards a more diversified and balanced direction.
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Original Article: “UK Media Reveals: Chinese Government Considers Allowing the Use of Yuan-Backed Stablecoins for the First Time”
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