China’s decision to close its doors to decentralized cryptocurrencies has not deterred Circle CEO Jeremy Allaire, who believes that stablecoins could still play a significant role in the proliferation of China’s digital yuan. Allaire, the head of the company behind the USD Coin (USDC), a stablecoin backed by the United States dollar, suggested that a yuan-based stablecoin could be China’s best option for driving the adoption of its national currency.
In an interview with the South China Morning Post, Allaire expressed his belief that stablecoins might offer a more effective method for the Chinese government to see the yuan used more freely in global trade and commerce, compared to the central bank digital currency (CBDC). While China has cracked down on the use of cryptocurrencies in 2021, it has been actively testing and issuing its digital yuan CBDC.
As of January 2023, the Chinese government reported that approximately 13 billion digital yuan are already in circulation. Interestingly, the digital yuan website claims that the currency will replace not only the dollar but also Tether (USDT) and all other stablecoins. However, the website specifies that the CBDC itself will not be considered a stablecoin. Users can exchange their cryptocurrency for digital yuan through MetaMask or the website’s own conversion portal.
Allaire acknowledged that China is unlikely to embrace decentralized cryptocurrencies but pointed to Hong Kong’s progressive attitude towards the crypto sector as a potential signal of covert support from the mainland. He also noted the positive trend of governments and central banks worldwide developing CBDCs using distributed ledger technology instead of legacy systems. However, he made it clear that this should not be interpreted as a shift towards accepting decentralized and self-sovereign systems, as innovation on the public internet relies on the private sector.
Nevertheless, the digital yuan is making its way beyond China’s borders. DBS, a cryptocurrency-friendly bank based in Singapore, has developed a digital yuan merchant solution that enables Chinese businesses to receive payments in the CBDC. The service allows clients in mainland China to receive digital yuan payments and have settlements directly deposited into yuan-based bank accounts.
In conclusion, while China has closed its doors to decentralized cryptocurrencies, the Circle CEO believes that stablecoins can still have a significant impact on the adoption of China’s digital yuan. The development and circulation of the digital yuan suggest that China aims to promote its national currency and reduce reliance on other stablecoins. However, the Chinese government’s crackdown on cryptocurrencies indicates its preference for centralized control. Only time will tell how the digital yuan will fare in the international market and whether stablecoins will have a lasting impact on China’s digital currency strategy.