By Sylvia Ma
Issuing a stablecoin pegged to the offshore yuan in Hong Kong may be more feasible than in mainland China due to the latter鈥檚 capital controls, a central bank adviser has said.
The comments from Huang Yiping, also dean of Peking University鈥檚 National School of Development, came as worries arise in Beijing鈥檚 policy circles that Washington could gain an upper hand through the cryptocurrency offshoot as a means of consolidating US dollar dominance.
鈥淎s China鈥檚 capital account is not fully liberalised, it would be very difficult to roll out a stablecoin domestically,鈥 he told financial news outlet Yicai.com on Wednesday.
Huang, an influential figure in his second stint at the People鈥檚 Bank of China鈥檚 monetary policy committee, acknowledged Hong Kong鈥檚 speedy progress in this area.
The special administrative region 鈥 often a staging ground for financial experimentation 鈥 has taken a more permissive stance than the mainland. In late May, the city passed a law establishing a regulatory framework for stablecoins that is set to take effect on August 1.
Although stablecoins can be pegged to any fiat currency, more than 99 per cent are currently backed by the US dollar or US dollar-denominated assets 鈥 far exceeding the US dollar鈥檚 roughly 50 per cent share in global payments and its 58 per cent share of global foreign exchange reserves.
鈥淭he issue with issuing a stablecoin in Hong Kong is that if it鈥檚 pegged to the Hong Kong dollar, which in turn is pegged to the US dollar – so ultimately, it鈥檚 the US dollar that plays the foundational role,鈥 Huang said.
鈥淗ong Kong has an offshore yuan market. If that market continues to grow, issuing a stablecoin pegged to offshore yuan in Hong Kong could be a possibility.鈥
Stablecoins, digital currencies pegged to fiat currencies or reserve assets such as gold, have rushed to the forefront of global economic debate. They are intended to inject more reliability into cryptocurrencies 鈥 a highly volatile asset class in their decentralised form 鈥 while taking advantage of their convenience in a number of applications, particularly cross-border transactions.
Huang said the country should not stay on the sidelines of such innovation, given that markets for stablecoins and other digital assets are gaining steam.
鈥淚f we can proactively leverage Hong Kong to carry out some pilot programmes, I think it would be very worthwhile,鈥 he said.
Beijing has taken a hard line on cryptocurrencies, banning their trade and mining on the mainland over security issues. Stablecoins, despite being studied by market institutions and mentioned by former PBOC governor Zhou Xiaochuan last month, have been largely relegated to a topic of academic discussion.
A thaw on regulations does not appear to be forthcoming on the mainland. Under anti-money-laundering rules for precious metals and gemstone dealers released on Monday, the PBOC urged institutions to carefully assess and mitigate risk before launching new products, services or technologies.
Effective August 1, institutions must report any single cash transaction equivalent to or higher than 100,000 yuan (US$13,954) to China鈥檚 anti-money-laundering monitoring centre within five business days, according to the central bank.