China is gradually loosening its stance on stablecoin to promote the digital yuan and compete in the global stablecoin market.
This change stems from concerns about capital leaving China and the increasing dominance of USD-pegged stablecoins. China plans to develop stablecoins linked to the yuan to maintain financial control.
- China is preparing to launch a yuan-backed stablecoin to compete with the US dollar.
- Hong Kong becomes a stablecoin testing ground with strict regulations and limited licensing.
- The primary goal is to retain domestic capital, strengthen financial position, and closely control digital currency.
Is China Really Changing Its Attitude Towards Stablecoin?
China has maintained a strict cryptocurrency ban for years, prohibiting trading and mining. However, recently, the country has shown signs of gradually approving stablecoin issuance, especially digital currencies linked to the yuan (RMB).
The People's Bank of China assesses that stablecoins have profoundly impacted the global payment system, and thus the country has begun seeking solutions to allow stablecoins to operate under strict domestic financial regulations.
This change indicates that China is considering expanding the role of digital currency in finance while prioritizing economic security.
Why Was Hong Kong Chosen as a Stablecoin Testing Ground?
Hong Kong is an international financial center, seen as a perfect testing ground for new cryptocurrency technologies. Recently, the special administrative region passed a law allowing companies to be licensed to issue tokens backed by legal tender.
Licensing regulations in Hong Kong are very cautious, only permitting a limited number of licenses for business purposes, not for individual users. This helps assess the actual effectiveness and technological risks without disrupting the broader market.
This policy reflects China's cautious but innovative approach to stablecoins.
What Strategy Helps China Retain Domestic Capital?
The primary reason for China's development of yuan-linked stablecoins is to limit capital outflows, especially through US dollar stablecoins like USDT or USDC.
The government fears uncontrolled capital flows will weaken the domestic financial system. Therefore, they focus on supporting stablecoins with values backed by the yuan, promoting international trade while keeping money within China's borders.
This approach is seen as the optimal way to maintain financial stability and enhance the yuan's position in the international arena.
"US dollar-based stablecoins not only increase the US's global financial influence but also pose many challenges in controlling money flows."
People's Bank of China, 2024
How Does China Balance Control and Innovation?
China's Central Bank acknowledges that stablecoins boost the US's financial position but remains very cautious about allowing stablecoins to operate domestically. Transparency and controllability remain top priorities.
Financial experts warn that widely issued stablecoins will be difficult to fully control and may risk capital leaving borders in hard-to-track and prevent ways.
Therefore, China chooses a model of permission with strict control, gradually testing instead of completely opening the digital currency market.
Does Allowing Stablecoins Signal Complete Cryptocurrency Acceptance?
No, the new policy is not a removal of the cryptocurrency ban. China continues to maintain prohibitions on open trading of Bitcoin, Ethereum, and other altcoins.
This permission focuses on state-standard-backed stablecoins, simultaneously testing technology while maintaining financial control.
This indicates China wants to leverage stablecoin advantages while limiting risks and maintaining internal financial stability.
Frequently Asked Questions
Does China Accept Bitcoin and Ethereum?
Currently, China maintains a ban on open trading of Bitcoin and Ethereum, only allowing testing of yuan-backed stablecoins.
What Are Stablecoins and Why Is China Interested?
Stablecoins are cryptocurrencies linked in value to legal tender like the yuan or US dollar. China views stablecoins as a tool for retaining domestic capital and enhancing financial position.
What Role Does Hong Kong Play in China's Stablecoin Development?
Hong Kong is an important testing ground where companies are given limited licenses to issue tokens backed by legal tender, cautiously evaluating new technologies.
What Concerns Does China Have About Opening Stablecoins?
China fears uncontrolled capital movement when stablecoins operate widely, potentially destabilizing finances and affecting state power.
How Does Stablecoin Development Impact the Global Market?
China may balance the dominance of US dollar stablecoins, helping the yuan enhance its influence in international monetary transactions.
