China is preparing to launch its first stablecoins, aiming to enhance the international role of the yuan and create an alternative to the dollar, writes the Financial Times. Despite growing interest from state-owned companies and large banks, the development of the technology is being hampered by regulators' concerns about potential capital flight and risks to financial stability.
While cryptocurrency trading remains banned in mainland China, Hong Kong has become its peculiar 'testing ground,' the publication notes. Recently, the city passed a law allowing licensed companies to issue stablecoins backed by any fiat currency. However, the Hong Kong Monetary Authority (HKMA) is approaching the process with caution and stated that it will issue only 'a few' licenses starting next year.
Against the backdrop of the success of dollar-backed stablecoins, Chinese authorities are increasingly calling for the promotion of their own projects in this area. In their view, such tokens enhance the global dominance of the United States. However, China's desire to use technology to expand the influence of the yuan faces the necessity of maintaining strict control over the country's financial system.
The head of the People's Bank of China, Pan Gongsheng, stated in June that stablecoins have 'fundamentally changed the traditional payment landscape.' According to FT, in the past two months, Chinese regulators have held a series of meetings with experts to discuss the development of cryptocurrencies and stablecoins. According to one participant, the main conclusion was that any such initiative in China must align with the country's national characteristics. Regulators are particularly concerned about the threat of capital leakage associated with the implementation of such technologies.
'This is not a technology that can be centrally controlled,' said Rebecca Liao, CEO of Saga, a company developing blockchain infrastructure. 'When they start investing in it, it will take them where they really don't want to go.'