In a recent interview with the South China Morning Post, Circle CEO Jeremy Allaire proposed an innovative solution to help China achieve its goal of internationalizing the Chinese Yuan (CNY).
Allaire suggested that the Chinese government consider allowing Chinese Yuan-backed stablecoins, emphasizing their potential to expand the currency’s usage in global trade and business. While Allaire recognizes the value of central bank digital currencies (CBDCs), stablecoins offer a more effective path toward RMB internationalization.
Allaire expressed optimism regarding central banks embracing distributed ledger technology and upgrading their systems. He highlighted the numerous benefits that could arise from such advancements, although he emphasized the distinction between these efforts and the private sector’s drive to innovate on the open internet.
However, implementing such a scheme would require China to address its current capital restrictions and prohibit the free conversion of the yuan. Gita Gopinath, the first deputy managing director of the International Monetary Fund, stressed the need for China to open its capital markets and enable complete currency convertibility by 2022.
Nevertheless, with these restrictions intact, China’s commitment to maintaining the status quo reflects its cautious approach to preserving the supremacy of the US dollar.
Former senior counselor to the US trade representative during the Biden administration, Brad Setser, anticipates gradual progress in using the yuan for China’s trade with commodity-exporting nations.
Setser believes China will face challenges in radically altering its trade settlement structure beyond these incremental steps. As a result, the nation may need help to pursue full convertibility and pose a genuine threat to the dominance of the US dollar.
To truly promote the yuan’s internationalization, China must navigate a delicate balance between its existing capital controls and the evolving demands of global trade. While stablecoins offer an innovative solution, the Chinese government remains cautious about embracing unrestricted convertibility that could significantly impact the current financial landscape.
As the world closely observes China’s progress, adopting yuan-backed stablecoins could provide a pivotal stepping stone towards a more internationally recognized and utilized currency. By combining innovation with gradual reforms, China has the potential to reimagine its role in the global financial system and elevate the influence of the Chinese yuan on the world stage.
Moreover, Circle CEO Jeremy Allaire’s proposal serves as a reminder that collaboration between the public and private sectors can foster groundbreaking advancements, paving the way for a more interconnected and innovative future in global finance.
