China has been at the forefront of CBDC development, with ongoing trials and pilot programs for the digital yuan.
Jeremy Allaire, the co-founder and CEO of stablecoin issuer Circle Financial, has recently urged Chinese authorities to consider yuan-backed stablecoins as a viable alternative to Central Bank Digital Currencies (CBDCs). Circle CEO’s suggestion comes amid China’s ongoing efforts to develop its own CBDC, the digital yuan.
In an interview with the South China Morning Post, the Circle boss highlighted the potential benefits of yuan-backed stablecoins for China’s international trade and commerce. He emphasized that if the Chinese government aims to see the yuan being widely used around the globe, stablecoins could be the path to achieve that goal. While he acknowledged that stablecoins and CBDCs are complementary, he believes stablecoins offer unique advantages compared to the central banks-issued virtual currencies.
“If, eventually, the Chinese government wants to see the RMB used more freely in trade and commerce around the world, it may be that stablecoins are the path to do that more than the central bank digital currency,” he told SCMP in the interview.
The Circle CEO further stressed that these types of cryptocurrencies have the advantage of maintaining the stability and familiarity of a fiat currency while leveraging the benefits of digital assets. By using stablecoins pegged to the yuan, China could enhance the global usability of its money and facilitate seamless cross-border transactions.
China’s Strict Policies on Yuan Convertibility Could Hinder Stablecoin Adoption
While Allaire’s proposal presents an alternative approach, it is important to consider the potential challenges associated with adopting stablecoins in China. The country has implemented strict capital controls and restrictions on the convertibility of the yuan as part of its economic policies. Experts have suggested that China may prefer to maintain its existing rules and limitations rather than pursue full currency convertibility, as it would require substantial changes to its trade settlement structure. Incremental steps, such as increasing the use of the yuan in trade with commodity-exporting countries, could be more feasible.
Moreover, Allaire’s proposition recognizes the complementary nature of stablecoins and CBDCs. He emphasized that if central banks upgrade their systems to utilize blockchain technology, it could bring numerous benefits. However, he also highlighted the distinction between the private sector’s innovative work on the public internet and the central banks’ role in developing CBDCs.
“If central banks are going to upgrade their own systems to move away from legacy technology into more modern distributed ledger technology, that’s great. There’s a whole bunch of useful things from that, but I view that as very different from the work the private sector does to innovate on the public internet,” he said.
Circle CEO Remains Optimistic about Web 3 Technologies in Hong Kong
China has been at the forefront of CBDC development, with ongoing trials and pilot programs for the digital yuan. The government’s focus on creating a centralized digital currency aims to enhance financial inclusivity, improve payment efficiency, and strengthen regulatory oversight.
The country banned its citizens in 2021 from engaging in any activities related to the crypto industry, including trading and mining of cryptocurrencies in the country. Allaire believes that while mainland China has maintained its stance against the emerging economy and has not shown a willingness to open up its markets to digital assets, he remains optimistic about the development of Web3 technologies in Hong Kong. He also praised Hong Kong’s local monetary efforts to regulate stablecoins.
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