Circle CEO suggests China should consider using CNY-backed stablecoins to promote the internationalization of its currency, emphasizing their potential effectiveness over CBDCs.
- Circle CEO suggests China should consider allowing CNY-backed stablecoins to promote the internationalization of its currency.
- Central bank digital currencies (CBDCs) are acknowledged but stablecoins are seen as a more effective means for global trade.
- Implementing stablecoins in China may face challenges due to capital controls and restrictions on currency convertibility.
- Experts debate whether China will pursue full currency convertibility and challenge the dominance of the US dollar, while stablecoins could offer an alternative approach.
In a recent interview with the South China Morning Post, Jeremy Allaire, CEO of Circle, suggested that the Chinese government should consider allowing Chinese Yuan (CNY)-backed stablecoins as a means to promote the internationalization of its currency. Allaire believes stablecoins could be a more effective way to facilitate the broader use of the RMB in global trade and commerce compared to central bank digital currencies (CBDCs).
⚠️ JUST IN: According to Circle CEO Jeremy Allaire, if Beijing aims to promote the internationalization of its currency, it should contemplate the possibility of permitting Chinese Yuan (CNY)-backed stablecoins – South China Morning Post Interview
— BecauseBitcoin.com (@BecauseBitcoin) July 11, 2023
Allaire Prefers Stablecoins
While Allaire considers stablecoins to be a superior option, he also acknowledges the importance of central banks upgrading their systems with modern distributed ledger technology. However, he highlights the distinct role of private sector innovation on the public internet.
Implementing such a plan in China may face difficulties due to the country’s economic policies, such as capital controls and restrictions on the free convertibility of the yuan. Gita Gopinath, the First Deputy Managing Director of the International Monetary Fund (IMF), has emphasized that China must adopt a more open approach towards its capital markets and embrace full currency convertibility in order to challenge the supremacy of the US dollar.
However, some experts and stakeholders believe that China is unlikely to pursue full currency convertibility and challenge the dollar’s dominance. Brad Setser, a former senior advisor to the US trade representative during the Biden administration, suggests that China may gradually increase the use of the yuan to denominate trade with commodity-exporting countries but could face challenges in radically altering its trade settlement structure.
It remains to be seen how Beijing will navigate the issue of stablecoins and CBDCs in relation to its broader economic and currency goals. The potential adoption of stablecoins backed by the Chinese Yuan could provide an alternative approach to enhance the international use of the RMB, while considering the country’s existing economic policies.
By allowing stablecoins to play a role in the internationalization of its currency, China could potentially expand its influence in global trade and strengthen the position of the Chinese Yuan. However, it would require careful consideration and potential adjustments to current economic policies.
As the world increasingly explores the potential of digital currencies, the competition to establish dominance in the market intensifies. Whether stablecoins or CBDCs will ultimately prevail as the preferred method for promoting international currency use remains uncertain. Nonetheless, China’s stance on stablecoins and CBDCs will undoubtedly be closely watched by the global financial community.