It’s high time that Beijing contemplates allowing Chinese Yuan (CNY)-backed stablecoins to internationalize its currency, according to Circle CEO Jeremy Allaire’s recent discussion with the South China Morning Post. This suggestion emerges as a promising method to escalate the global adoption of the Renminbi (RMB), the Chinese Yuan’s official name, in trade and commerce.
Stablecoins as a Pathway for Currency Internationalization
“Stablecoins might offer a more feasible route to achieve widespread global usage of the RMB than the central bank digital currency (CBDC),” Allaire conveyed to the publication. Contrary to his belief in the superiority of stablecoins over CBDCs, he perceives both as serving complementary roles.
He appreciates the central banks’ initiative to transition from their legacy technology towards adopting more contemporary distributed ledger technology. “This progression is commendable and beneficial in many ways. However, it’s distinctively separate from the innovations the private sector makes on the public internet,” Allaire stated.
Potential Hurdles in the Adoption of Stablecoins
Implementing such an innovative plan may meet with resistance from Chinese authorities. Primarily, their reluctance may stem from the stringent capital controls and the prohibition on free convertibility of the yuan. These factors serve as the foundational pillars of China’s economic policy.
IMF First Deputy Managing Director Gita Gopinath, in 2022, asserted that for China to challenge the dollar, it must liberalize its capital markets and allow full currency convertibility.
However, stakeholders observe that China might prefer maintaining these policies rather than allowing free convertibility, thereby directly threatening dollar dominance.
Role of Stablecoins in Facilitating Remittances
In this context, stablecoins like Circle and Tether have reaped considerable benefits. As per research conducted by Chainalysis, stablecoins have proven to be effective tools for remittances. They are particularly beneficial for Chinese companies sourcing from overseas.
On a different note, earlier this year, the creators of CNHC, a stablecoin linked to the offshore version of the yuan predominantly used in the bond market, faced arrest in Shanghai.
The potential of Chinese Yuan-backed stablecoins is immense. They might just be the key to not only promote the RMB’s global usage but also bring a transformation in the traditional banking systems. However, actualizing this potential requires surmounting the roadblocks of policy constraints and garnering acceptance from the concerned authorities.