Beijing steps in as PBoC warns against private stablecoin issuance

Chinese tech giants have shelved their plans to launch stablecoins in Hong Kong after Beijing raised red flags over the growing influence of privately controlled digital currencies. 

Alibaba-backed Ant Group and e-commerce giant JD.com were among the firms that had expressed interest earlier this year in joining Hong Kong’s pilot stablecoin program or issuing virtual asset-backed products such as tokenized bonds. 

However, those plans have now been put on hold following guidance from regulators, including the People’s Bank of China (PBoC) and the Cyberspace Administration of China (CAC), according to sources familiar with the matter.

Beijing steps in as PBoC warns against private stablecoin issuance

The PBoC is said to have discouraged firms from participating in early trials, with concerns surrounding the potential impact of allowing private parties to issue any kind of currency. Private stablecoins were seen as a potential threat to the central bank’s own digital yuan project (e-CNY), according to one source.

“The real regulatory concern is, who has the ultimate right of coinage — the central bank or any private companies on the market?” said a different person.

Stablecoins, which are digital assets pegged to fiat currencies like the US dollar, form a critical part of the global cryptocurrency ecosystem. Unlike BTC and other digital assets that fluctuate widely, stablecoins are designed to track the value one-for-one of traditional currencies, primarily the US dollar.

The pushback from Beijing reflects a broader global trend, as regulators worldwide weigh the implications of stablecoins on monetary sovereignty and financial stability.

Still, JPMorgan Chase & Co. recently said the worldwide acceptance of stablecoins could flood trillions of dollars into the US dollar over time, with future estimates for demand of the digital asset varying widely.

“Rather than accelerating de-dollarization, growth in stablecoin adoption has the potential to reinforce the dollar’s role in global finance,” a JPMorgan team including Kunj Padh, Meera Chandan, and Octavia Popescu said in a Tuesday note.

Bank strategists have various projections for the eventual scale of the stablecoin market, even within JPMorgan itself. A team of strategists covering emerging market equities thinks that the market will ultimately become as large as $2 trillion. The bank’s US rates strategists are more cautious and have a forecast for ultimate uptake of about $500 billion. JPMorgan strategists estimate that roughly 99% of all stablecoins are backed one-to-one by the US dollar or dollar-denominated assets.

Ant Group and JD.com retreat from Hong Kong’s digital currency pilot

The European Central Bank (ECB) has previously warned that the widespread use of dollar-based stablecoins could erode its monetary policy powers. The Hong Kong Monetary Authority (HKMA), for its part, in August started accepting applications from stablecoin issuers, positioning the city as a testing ground for mainland China’s digital finance aspirations.

Interest from Chinese companies in the Hong Kong project surged over the summer, with some viewing renminbi-backed stablecoins as a potential means to expand the international use of the yuan. As early as June, former Vice Finance Minister Zhu Guangyao declared that the US’s promotion of stablecoins aimed to protect the dollar’s international dominance and called on China to respond by incorporating an RMB-linked stablecoin into its national financial strategy.

However, sentiment within China’s financial circles shifted after former PBoC governor Zhou Xiaochuan called for a cautious approach. Speaking at a closed-door financial forum in July, Zhou warned of the systemic risks associated with speculative use of stablecoins and questioned their real-world utility in payments.

Zhou said they must guard against excessive speculation, emphasizing the need to evaluate the true demand for tokenization and its role within the broader financial system.

Neither the PBoC nor the HKMA commented on the developments. The CAC, Ant Group, and JD.com also declined to comment on the requests.

Get seen where it counts. Advertise in Cryptopolitan Research and reach crypto’s sharpest investors and builders.