In an interview with the South China Morning Post, Jeremy Allaire, CEO of Circle, the issuer of USD Coin (USDC), expressed his belief that stablecoins could play a crucial role in driving the adoption of China’s national currency, the digital yuan or renminbi (RMB). While China has banned decentralized cryptocurrencies, Allaire suggests that a renminbi-based stablecoin might be the key to increasing the global use of China’s currency.
Allaire argues that if the Chinese government aims to promote wider usage of the RMB in global trade and commerce, stablecoins could potentially serve as a more effective tool than the central bank digital currency (CBDC) alone. Despite China’s crackdown on cryptocurrencies in 2021, it has been actively developing and testing its CBDC, known as the digital yuan or e-CNY. As of January 2023, around 13 billion e-CNY were already in circulation.
Distinguishing CBDCs from Decentralized Cryptocurrencies
The official digital yuan website states that the e-CNY will eventually replace the US dollar, USDT, and other stablecoins. However, it makes clear that the CBDC is not itself a stablecoin. The website offers users the ability to exchange cryptocurrencies for e-CNY through MetaMask Swap or the platform’s own conversion portal.
Allaire acknowledges that China is unlikely to embrace decentralized cryptocurrencies fully. However, he suggests that Hong Kong’s progressive approach to the crypto sector might hint at subtle support from mainland China. While governments and central banks worldwide are developing CBDCs using distributed ledger technology, Allaire emphasizes that this shouldn’t be mistaken as an acceptance of decentralized and self-sovereign systems.
Digital Yuan Expanding Beyond China
Despite restrictions on cryptocurrencies, the digital yuan is making its way beyond China’s borders. DBS, a cryptocurrency-friendly bank based in Singapore, has developed an e-CNY merchant solution that enables Chinese businesses to receive payments in the CBDC. This service allows clients in mainland China to receive or collect e-CNY and settle directly into their renminbi-based bank accounts.
As China continues its efforts to develop and promote its CBDC, the role of stablecoins becomes increasingly relevant. While stablecoins may provide a pathway for international adoption of the RMB, China remains cautious about decentralized cryptocurrencies. The expansion of the digital yuan’s reach beyond China demonstrates the growing influence and potential of central bank digital currencies in a globalized economy.