- China is reportedly ramping up plans to launch a Yuan-backed stablecoin in Hong Kong.
- China’s stablecoin bid aims to compete against the US dollar amid increasing interest in stablecoins among state-owned enterprises and e-commerce giants.
- Some concerns that could slow the widespread licensing for stablecoin issuance include capital outflow, money laundering, and currency speculation.
China is ready to consolidate its rivalry against the US dollar by deploying a yuan-backed stablecoin; however, the state’s financial agencies are still seeking ways to contain concerns that potentially threaten the country’s economy.
Hong Kong To Launch First Stablecoin
America’s emphasis on digital assets has visibly spurred other nations, including China, into action as the tussle for global leadership in financial technology innovation intensifies. Following the successful establishment of a regulatory framework for dollar-backed stablecoins, China seeks to contain US hegemony by launching its renminbi- or yuan-backed stablecoin.
Presently, cryptocurrency and stablecoins are restricted in mainland China; however, there’s a massive influx of business interest in stablecoins. For instance, Ant Group and JD.com, two of China’s biggest e-commerce firms, have already begun urging the country’s central bank to approve yuan-backed stablecoins to compete against dollar-backed crypto.
According to a local source, JD.com has even rolled out the second phase of its sandbox testing for its stablecoin while warming up for a license opportunity. These stablecoin efforts by Chinese tech giants and policymakers aim to bolster the offshore prominence of the yuan and strengthen it against the dollar.
Capital Outflow, Other Worries Could Slow Stablecoin Rollout
China’s legal embrace of stablecoins in its crypto capital of Hong Kong still faces many roadblocks, including the nation’s reputation for having its financial system under a strong leash. Insider information from discussions between experts and regulators suggests the central bank’s fears of capital outflow if stablecoins are given a soft landing.
According to FT, one such participant said the emphasis was that “any stablecoin project implemented in China must be compatible with the country’s specific national conditions.” If that is the case, then Hong Kong’s plans to rival the stablecoin growth in the US might be unattainable.
The Hong Kong Monetary Authority has also raised concerns over the possible use of stablecoins to facilitate money laundering and market speculation. At the moment, the central banking institution is ensuring that potential licensees meet reserve and other requirements.
Several state-owned corporations are allegedly in talks with the HKMA on how to obtain a stablecoin issuance license. One of such firms is CITIC Group, a state investment company. Similarly, Guotai Haitong, Shanghai Data Group, and the Bank of China could also be in the queue for a stablecoin license.
Based on the HKMA’s approach towards licensing, coupled with China’s emphasis on controlling capital outflow, insiders say only one of China’s government-backed banks will be licensed for stablecoin issuance at the onset. The central bank is also expected to prioritize business-to-business use of stablecoins.
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