Jeremy Allaire, CEO of Circle, suggested that China should consider yuan-backed stablecoins instead of CBDCs.
Jeremy Allaire, CEO of Circle, suggests that Beijing should consider allowing Chinese yuan (CNY)-backed stablecoins if it wants to internationalize its currency.
In a recent interview with the South China Morning Post, Allaire argued that stablecoins might be a better option for renminbi (RMB) internationalization than central bank digital currencies (CBDCs).
“The reality is that every other major financial market in the world is also embracing digital assets, and the biggest financial institutions in the world are embracing digital assets. So for Hong Kong to be relevant, it has to,” Allaire added.
Allaire sees stablecoins as a superior option to CBDCs, although he considers that the two can be complementary. In his opinion, if central banks decide to upgrade their systems away from legacy technology and towards more modern distributed ledger technology, that would be a positive. However, he sees this as very different from the work the private sector is doing to innovate on the public internet.
Other stakeholders support a different viewpoint, claiming that China would rather not challenge the dollar. Brat Setser, a former senior advisor to the U.S. trade representative during the Biden administration, for example, thinks that “there will be incremental moves to make greater use of the yuan to denominate China’s trade with commodity-exporting countries, (…) and then China will discover that it is difficult to fully go much further and to really radically change the structure of how it settles its trade.”
China’s position
The authorities in China may be reluctant to allow such a plan, since capital controls and a ban on the free convertibility of the yuan are pillars of its economic policy. Gita Gopinath, the IMF’s first deputy managing director, said in 2022 that China would need to open its capital markets and allow full currency convertibility if it wants to challenge the dollar.
Despite the restrictions, stablecoins have proven to be an effective tool for remittances, especially for Chinese companies that need to source resources from abroad. Companies like Circle and Tether have benefited from this situation, according to research by Chainalysis.
In Conclusion
The Chinese yuan internationalization could take a different path than expected. According to Jeremy Allaire, CEO of Circle, yuan-backed stablecoins could be a more viable and less risky option than central bank digital currencies.
Although China has maintained a cautious stance regarding the free convertibility of the yuan, stablecoins have proven to be an effective tool for remittances, especially for Chinese companies that need to source resources from abroad.
However, the adoption of this proposal will largely depend on the willingness of the Chinese authorities to adapt to innovations in the cryptocurrency space.
An example of China’s position regarding this issue is Bank of China Vice Governor Fan Yifei’s statement that stablecoins such as Tether are becoming a potential risk to the financial system.
“The so-called stablecoins of some commercial organizations, especially global stablecoins, can bring risks and challenges to the international monetary system and the payment and settlement system,” Yifei said, pointing out that the entity is designing new measures to deal with these risks.
By Audy Castaneda
