Yuan's Global Ambitions and the Rise of Stablecoins

China is actively increasing the use of digital currencies to promote its yuan, also known as the renminbi. This move reflects China's position as the world's second-largest economy and aims to challenge the dominance of the U.S. dollar in international trade and finance.

However, the global use of the yuan faces obstacles, including restrictions on access to Chinese financial markets and limitations on the currency's convertibility. Despite these challenges, Hong Kong has already established regulations for stablecoins, and some Chinese experts are advocating for regulations to prepare for a potential stablecoin pegged to the yuan.

Stablecoins are digital currencies whose value is tied to a specific currency, such as the U.S. dollar. They offer an alternative in situations where traditional currency transactions might be difficult or expensive. Unlike cryptocurrencies like Bitcoin, stablecoins are primarily intended as a means of payment rather than an investment for trading.

China introduced its own digital yuan, the e-CNY, in 2019 on a trial basis. The use of electronic payments has facilitated the adoption of e-CNY within mainland China, with some cities using it for civil servant salaries. China is also promoting the use of e-CNY in Africa.

Hong Kong, with its own financial markets and legal system, has enacted a stablecoin law to attract investors interested in digital currencies. This law requires that stablecoins linked to the Hong Kong dollar be backed by equivalent reserves.

Experts note that China's currency is not freely convertible in global financial markets, and strict foreign exchange controls are the primary obstacle to the yuan becoming a global currency. The yuan is the sixth most active currency for global payments by value, with a share of 2.88% as of June. The majority of yuan transactions occur in Hong Kong. The U.S. dollar remains the dominant global payment currency, followed by the euro, British pound, Canadian dollar, and Japanese yen.