Circle CEO Urges China To Embrace Yuan-Backed Stablecoins

Key Points:

• Beijing should consider CNY-backed stablecoins to internationalize its currency.
• Stablecoins may be a better path than CBDCs for RMB use in global trade.
• IMF says opening capital markets and full currency convertibility are key for yuan challenge to the dollar.

According to Circle CEO Jeremy Allaire in a recent interview with the South China Morning Post, Beijing should consider allowing for Chinese Yuan (CNY)-backed stablecoins if it wants to internationalize its currency.

Allaire believes that if the Chinese government wants the RMB to be used more freely in trade and commerce around the world, stablecoins might be the way to achieve this instead of central bank digital currency.

While Allaire thinks that stablecoins are a better option than CBDCs, he also believes that the two are complementary. Central banks should upgrade their own systems to move away from legacy technology and use more modern distributed ledger technology, according to Allaire. This would be great for many things, he said, but he sees private sector innovation on the public internet as very different from the work done by central banks.

However, it is unlikely that authorities in China would allow such a plan to come to fruition. Capital controls and a ban on the free convertibility of the yuan are integral to China’s economic policy. The IMF’s First Deputy Managing Director Gita Gopinath said in 2022 that China would need to open its capital markets and allow for full currency convertibility if it wanted to challenge the dollar.

Other stakeholders have noted that China would be more likely to keep these rules in place than allow for free convertibility and an actual challenge to dollar dominance. Brad Setser, a former senior advisor to the U.S. trade representative during the Biden administration, told Foreign Policy that he thinks there will be incremental moves to make greater use of the yuan to denominate China’s trade with commodity-exporting countries. He then believes that China will discover that it is difficult to fully go much further and to really radically change the structure of how it settles its trade.

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