Hong Kong has proposed allowing the issuance of yuan-linked stablecoins. This was the call made by the Hong Kong Chamber of Commerce to the local government, to include in the upcoming budget the option of issuing yuan-pegged stablecoins.
What is stopping Chinese authorities from issuing a yuan-linked stablecoin? Is this even possible (for example, there are already tokens pegged to the HKD - the Hong Kong dollar), given the government's position on crypto? How might this change the market?
1. The main issue preventing the issuance of a stablecoin pegged to the yuan is the tough position of the Chinese authorities towards cryptocurrencies. Operations and trading of crypto assets are prohibited in mainland China. Accordingly, a yuan-linked stablecoin is unlikely to be officially supported and approved by the state.
2. It is possible to issue non-state stablecoins based on the yuan without direct support from the People's Bank of China. For example, there are CNHC and HKDC. However, few investors trust them due to the risk of bans. On May 31, 2023, there was news that the Chinese police had detained a team from Trust Reserve, the developers of stablecoins CNHC and HKDC. At the moment, it is unclear what charges have been brought against the team members. Nonetheless, the arrest sent shock waves across the crypto community.
3. If, hypothetically, a yuan stablecoin gets the green light and wins support from Chinese regulators, this could be a game changer for the crypto market. The yuan ranks second among the world's reserve currencies after the US dollar. Accordingly, a stablecoin based on it could potentially become very influential and large-scale. However, in the foreseeable future, such a scenario seems unlikely. China is developing the digital yuan as an official government cryptocurrency and is unlikely to support independent stablecoins.
Thus, the idea looks promising, but its implementation faces serious hurdles due to the current policy of the PBoC in this area.