China Sees Stablecoin FOMO Amid Washington's Regulatory Clarity

China is facing fears of missing out on the stablecoin trend as the US passes a bill to regulate dollar-pegged digital tokens. Beijing is urging policymakers to develop yuan-backed stablecoins and start laying out regulations to avoid being left behind. Analysts and officials are concerned that the US head start could deepen the greenback's dominance in digital trade.

As the United States advances in its regulatory framework for dollar-pegged stablecoins, China is feeling the pressure to keep up. With the US Senate passing the GENIUS Act, which establishes a federal regulatory framework for stablecoins, Beijing is urging its policymakers to develop yuan-backed stablecoins and start laying out regulations to avoid being left behind [3].

According to Morgan Stanley, China's central bank could use Hong Kong as a sandbox for testing digital payment alternatives to internationalize the yuan [1]. Hong Kong has already established the world's first regulatory regime for stablecoins, positioning itself as a launch pad for yuan-pegged stablecoins that could be used for cross-border settlement [1]. The move is supported by Hong Kong's robust offshore yuan liquidity pool, estimated at around 1 trillion yuan (US$139 billion) [1].

However, making the yuan truly international faces hurdles due to China's economic challenges. Companies like Nano Labs, which plans to apply for licenses to issue HKD and offshore RMB stablecoins, are eager to participate in this transformation [2]. The stablecoins bill introduces a comprehensive licensing regime, which will be overseen by the Hong Kong Monetary Authority (HKMA) and the Securities and Futures Commission (SFC) [2].

While China is taking steps to catch up, the US head start could deepen the greenback's dominance in digital trade. The GENIUS Act requires one-to-one reserves, consumer protection, and anti-money laundering mechanisms for stablecoins, setting a high standard for international competition [3].

As the stablecoin market grows, with the global market cap reaching $250 billion, future regulatory coordination and technological interoperability will determine their global adoption [3]. China must act swiftly to ensure its yuan remains competitive in the digital currency landscape.

References:
[1] https://amp.scmp.com/business/cryptocurrency/article/3315514/beijing-could-use-hong-kong-test-bed-yuan-linked-stablecoins-morgan-stanley
[2] https://www.cryptopolitan.com/nano-labs-hkd-rmb-stablecoin-license/
[3] https://www.moomoo.com/community/feed/crypto-weekly-digest-u-s-senate-passes-genius-stablecoin-bill-114731990646790