Chinese e-commerce giants JD.com and Alibaba’s Ant Group are urging China’s central bank to authorize yuan stablecoins. They proposed launching stablecoins in Hong Kong pegged to the offshore yuan, with expansion plans to other free-trade zones.
The tech giants are making this proposal in the wake of rising U.S.-dollar-linked stablecoins. Launching yuan-pegged stablecoins in Hong Kong will promote the use of Chinese currency and curtail the growing influence of dollar stablecoins. This shift could reshape global digital payments and launch a superpower currency in yuan.
Yuan Stablecoins Will Reduce Dollar Dependence
China’s renminbi (CNY) accounts for only 4.6% of global payments, despite being the world’s second-biggest economy. In contrast, the U.S. dollar dominates with 47%. Furthermore, the global stablecoin market is dominated by the U.S. dollar, with dollar-denominated stablecoins capturing 99% of the market.
JD.com warns that dollar dominance poses a threat to yuan internationalization. In a closed-door meeting with the People’s Bank of China, the e-commerce giant said launching offshore yuan stablecoins will promote the international use of yuan. A yuan-backed stablecoin will offer round-the-clock cross-border transfers, leveraging Blockchain, and potentially disrupt traditional cross-border payments. Furthermore, it reduces dependence on intermediaries, offering lower costs and increased settlement speed.
CoinGecko currently puts the stablecoin market at $247 billion, although it’s projected to grow to $2 trillion by 2028 based on Standard Chartered Bank estimates. A yuan-pegged stablecoin will reflect China’s weight as the world’s second-largest economy, putting the currency on par with heavyweights like the euro and dollar. Additionally, it could reduce companies’ dependency on the dollar and dollar-pegged stablecoins like USDT, which are increasingly used by Chinese merchants.
JD.com and Ant Group Apply for Yuan Stablecoin Licenses
The tech giants’ lobbying efforts are driven by their objectives to capitalize on new Hong Kong legislation, which takes effect on August 1. JD.com had previously hinted at launching its stablecoin for business transactions and consumer payments. If JD.com and Ant Group’s efforts are successful, there’d be a dynamic shift in Beijing’s views on cryptocurrencies.
Recall that China placed a blanket ban on cryptocurrencies in 2021, a move considered by many as rash. China has never been a strong advocate of mainstream cryptocurrencies like Bitcoin, but instead, prefers a CBDC. This led to the pilot and eventual launch of the digital yuan (e-CNY).
However, launching a yuan-pegged stablecoin in Hong Kong could reshape China’s strategy in promoting the internationalization of the yuan. It could also signal a power shift, which aligns with the country’s ambitious plans to be a world superpower. It could strengthen China’s digital economy, introduce currency competition, and position both Hong Kong and Chinese zones as crypto hubs under the new LEAP legislation.
Will China Launch a Yuan Stablecoin
Launching a yuan stablecoin has strategic benefits for both the country and users. However, China may be skeptical of launching one because of competition with its CBDC (e-CNY). The country is aggressively promoting its digital yuan, and launching a private stablecoin could pose a challenge to the growth of e-CNY.
Regulation is another. To launch a private stablecoin is adopting a new set of regulatory framework different from that, which governs its CBDC. The regulations must navigate KYC/AML compliance, transparency, audits, etc., which could take some time to achieve. We are looking at months or even years of deliberation.
Hong Kong contends with the United States to set up a regulatory framework for stablecoins. As it takes effect in August, the legislation will push more countries to adopt similar stablecoin frameworks that align with global standards.
