Chinese tech giants have shelved plans to launch stablecoins in Hong Kong after Beijing raised concerns about the rise of privately controlled currencies.
Companies, including Alibaba-backed Ant Group and e-commerce giant JD.com, announced last summer that they would participate in Hong Kong’s stablecoin pilot program or issue virtual asset-backed products, such as tokenized bonds.
But it has since put its stablecoin ambitions on hold after receiving instructions not to proceed from Chinese regulators, including the People’s Bank of China (the central bank) and the Cyberspace Administration of China, according to sources familiar with the matter, the Financial Times reported.
Stablecoins are digital tokens pegged to fiat currencies, such as the US dollar, and are a cornerstone of crypto trading.
Concerns
According to five sources, officials from the People’s Bank of China have advised against participating in the initial coin offering due to concerns about allowing technology groups and brokerage firms to issue any currency.
A source familiar with the central bank’s briefings to tech groups said that the issuance of privately managed stablecoins is also seen as a challenge to the People’s Bank of China’s digital currency project (the digital yuan).
Financial Times quoted another source as saying:
The real regulatory concern lies in who has the ultimate authority to issue currency: the central bank or any private companies in the market?
The issuance of privately run stablecoins is seen as a challenge to the People’s Bank of China’s digital currency project, the digital yuan.
The Chinese authorities’ rejection is underscored by the eagerness of regulatory bodies around the world to respond to the emergence of stablecoins, especially after the Trump administration promoted them as a pillar of finance and a means of demonstrating the dominance of the US dollar.
The European Central Bank said that widespread adoption of dollar-based stablecoins could hamper its ability to control monetary policy.
Last August, the Hong Kong Monetary Authority—the territory’s de facto central bank—began accepting applications from stablecoin issuers, cementing its position as a testing ground for mainland China.
In China, interest in the Hong Kong program increased over the summer, with some officials suggesting that renminbi-denominated stablecoins could boost the international use of the yuan.
Financial challenge
In June, China’s former vice finance minister said that:
The strategic goal behind the US’s promotion of stablecoins is to maintain the dollar’s dominance, and that China must respond to this financial challenge by developing a stablecoin pegged to the renminbi.
he said at a forum in Beijing in June:
We must take full advantage of the pilot programs in Hong Kong, The stablecoin renminbi must be integrated into the overall design of the national financial strategy.
But two people familiar with the tech groups’ plans said financial regulators are taking a more cautious approach following a speech by former People’s Bank of China Governor Zhou Xiaochuan in late August.
At a closed-door financial forum in Beijing in July, Zhou urged a comprehensive evaluation of stablecoins and the potential systemic risks they pose.
Zhou said at the China Finance 40 forum, according to an article later published by the state-backed think tank:
We need to be vigilant against the risk of excessive use of stablecoins for asset speculation, as misdirection could lead to fraud and instability in the financial system
Chu urged a careful assessment of the true demand for digital currencies as a technological foundation. He added:
Although many believe that stablecoins will reshape the payments system, there is actually little room for cost reduction in the current system, especially in retail payments.
Zhou Guangyao, China’s former vice minister of finance, said:
The strategic goal behind the US’s promotion of stablecoins is to maintain the dollar’s dominance.
Sources:
- Chinese tech giants pause stablecoin plans after Beijing steps in — Financial Times
- Former PBOC Chief Zhou Pushes Back Against China Stablecoin Idea — Bloomberg
- Former China central bank governor urges caution amid stablecoin frenzy — South China Morning Post
- Chinese tech giants halt Hong Kong stablecoin plans amid Beijing concerns: FT — Cointelegraph
