China is not a fan of cryptocurrencies. Over the past decade, the Chinese government has built up one of the world’s most hostile regulatory frameworks against cryptocurrency-related activities, including trading and mining. Beijing views digital assets like bitcoin as a threat to the country’s financial stability and capital account controls, and even a challenge to the nation’s currency sovereignty.
In the face of challenges from bitcoin and other privately-issued digital currencies such as Facebook’s Diem, formally known as Libra, China’s central bank has started to promote the use of a “sovereign” digital yuan. But the digital yuan “experiment” has for years struggled to find relevance as a form of payment in domestic and international transactions.
The green light comes at a time when the second administration of US President Donald Trump has adopted a friendly stance towards stablecoins, a type of cryptocurrency that maintains a fixed value by being pegged to a reference asset such as the US dollar.
China is taking notice. While Beijing has yet to make any official comment on stablecoins, there are research papers making the argument that stablecoins, backed by US dollar assets, represent an extension of US dollar hegemony in the blockchain realm.
The world’s top-10 stablecoins in terms of market capitalisation are all backed by US dollar assets, except Pax Gold that is backed by gold. There are also stablecoins backed by euro assets, but the market cap of these is tiny compared to US dollar ones.
