Chinese tech giants are urging the central bank to grant them permission to issue yuan-backed stablecoins in a bid to challenge the growing dominance of dollar-based stablecoins.
Countering Dollarization of the Digital Economy
Chinese tech giants JD.com and Ant Group are reportedly urging the central bank to permit them to issue yuan-backed stablecoins to counter the dominance of dollar stablecoins. According to a Reuters report citing anonymous sources, the two firms intend to initially launch stablecoins in Hong Kong that are linked to its offshore yuan.
According to the report, both firms aim to launch the stablecoins after August 1, when Hong Kong’s new legislation is said to take effect. At the crux of the firms’ desire to promote yuan stablecoins are fears that the U.S. dollar’s growing digital influence, if left unchecked, could pose a serious challenge to China. The tech firms, alongside Chinese academics, have been advocating for the internationalization of the yuan to counter the dollarization of the digital economy.
Indeed, several current and former U.S. officials have stated that dollar-based stablecoins have the potential to extend the greenback’s hegemony. They have implored the U.S. government to capitalize on this by establishing a stablecoin regulatory framework. The message appears to have been received, with the U.S. Congress now closer to passing stablecoin regulation law known as the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act.
These developments, as well as the growing adoption of stablecoins like USDT, which is largely backed by U.S. Treasuries, have prompted the tech giants to urge a rethink on China’s stance on digital assets. Wang Yongli, a former vice head at the People’s Central Bank, recently warned that the dollar’s growing digital influence represents a fresh challenge to China’s yuan ambitions.
“The global expansion of U.S. dollar stablecoins is posing fresh challenges to yuan internationalization. It would be a strategic risk if cross-border yuan payment is not as efficient as dollar stablecoins,” Wang stated.
However, many observers argue that while China desires the yuan to become a global reserve currency like the dollar, achieving this goal is torpedoed by its tight capital controls. This reluctance to end these controls has seen the yuan fail to challenge the dollar, with its share as a global payment currency even falling to 2.89% in May.