As part of an initiative to internationalize the renminbi (Chinese Yuan) and enhance its competitiveness against the US dollar, China is poised to launch its first stablecoin. Meanwhile, the US is making significant progress toward its mission of becoming the crypto capital of the world.
Despite this ambitious plan, concerns about potential capital flight are reportedly hindering the rapid advancement of stablecoin technology within the country.
Recently, the territory passed legislation allowing licensed businesses to issue tokens backed by any fiat currency. However, the Hong Kong Monetary Authority (HKMA) has taken a cautious stance, indicating that only a limited number of licenses will be issued starting next year.
Policymakers in China have increasingly turned their attention to stablecoins, recognizing the growing dominance of dollar-backed tokens in the global economy.
The central bank governor, Pan Gongsheng, noted in a June speech that stablecoins have “fundamentally reshaped the traditional payment landscape.” However, the Chinese government faces a delicate balancing act; while it seeks to enhance the global standing of the renminbi, it must also maintain stringent controls over its financial system.
Rebecca Liao, CEO of Saga, a company focused on blockchain infrastructure, articulated the complexities of adopting stablecoin technology, highlighting that it cannot be completely controlled by central authorities.
This concern has contributed to Hong Kong’s slower progress in developing a thriving stablecoin market, especially when compared to the rapid growth observed in the United States.
The HKMA has voiced apprehensions about the potential use of stablecoins in money laundering, emphasizing the need for stability and control in its new regulatory framework.
As such, initial stablecoin programs in Hong Kong are expected to focus on business-to-business applications, limiting their broader adoption.
Multiple state-owned companies with operations in Hong Kong are reportedly looking to apply for stablecoin licenses, although only one of China’s four major state-owned banks is expected to receive a license from the HKMA in this initial phase.
The HKMA has not ruled out the possibility of approving licenses for stablecoins backed by offshore renminbi, a move that could further facilitate cross-border payments—an area of increasing importance for China.
Featured image from DALL-E, chart from TradingView.com
