China is preparing to launch its first stablecoins, attempting 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 major banks, the development of the technology is hampered by regulators' concerns about potential capital outflows 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 cautiously and stated that it will issue only 'a few' licenses starting next year.
In the wake of the success of dollar-backed stablecoins, Chinese authorities are increasingly stating the need to promote their own projects in this area. They believe that such tokens enhance the global dominance of the United States. At the same time, 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 the 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 national characteristics of the country. Regulators are particularly focused on the threat of capital leakage associated with the implementation of such technologies.
"This is not the kind of 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 absolutely do not want to go."
Beijing's caution is also reflected in Hong Kong's approach. HKMA representatives warned of risks related to money laundering and speculation, stating that the first phase of the program will focus on applications in the B2B sector. Fintech companies participating in the testing program must demonstrate sufficient reserves, well-thought-out dispute resolution mechanisms, and a clear understanding of legal jurisdiction.
Interest in issuing stablecoins is being shown by Chinese state-owned companies, particularly in the area of settlements and cross-border payments, as reported by the FT. Several such companies operating in Hong Kong are already preparing to apply for licenses. However, of the four largest Chinese state banks, only one is expected to receive permission in the first phase, according to sources.
The HKMA also does not rule out the possibility of approving stablecoins backed by offshore yuan. This aligns with China's long-standing plans to expand the use of its national currency in international settlements. Stablecoins in this context are seen as an alternative to traditional systems like SWIFT, which Beijing regards with increasing caution amid geopolitical tensions.
As noted by Chen Lin, director of the Financial Innovation Center at the University of Hong Kong, competing with the dollar's stablecoin ecosystem will be extremely difficult. "Hong Kong is making efforts, but the road is still long," he concluded.
Previously, Jürgen Shaaf, a senior economist at the European Central Bank, warned about the risks associated with dollar-backed stablecoins. In a blog post, he noted that the widespread proliferation of tokens pegged to the US dollar could undermine the financial stability of the eurozone and lead to a loss of monetary sovereignty. According to Shaaf, stablecoins like USDT and USDC currently account for about 99% of the global market, and their growth threatens to displace the euro from international settlements. The Financial Times forecasts that the turnover of stablecoins could grow from $230 billion in 2025 to $2 trillion by 2028.
