Last weekend, misleading reports suggested that China imposed a new ban on cryptocurrencies; however, this was inaccurate. In reality, China had already banned both cryptocurrency trading and mining back in September 2021. Despite this, significant regulatory changes occurred in Hong Kong on August 1, 2023, where new laws were introduced allowing companies to apply for licences to issue stablecoins. Unlike volatile cryptocurrencies such as Bitcoin, stablecoins have a value tied to traditional currencies or commodities, providing more stability for investors.
Last year, transactions involving stablecoins totalled a remarkable US$27.6 trillion, surpassing the combined volume of transactions made through Visa and Mastercard and numbering approximately 15 times the total value of the Australian economy. The trend of regulating stablecoins is not exclusive to Hong Kong. In the United States, President Donald Trump recently signed the GENIUS Act, aimed at creating a regulatory framework for stablecoins. This has led to a positive market response, with companies engaged in stablecoin issuance seeing significant stock price increases.
In contrast, the Reserve Bank of Australia (RBA) remains cautious, ruling out the introduction of a central bank digital currency while initiating trials of tokenised currencies and stablecoins. Despite the enthusiasm surrounding stablecoins, critics like law professor Hilary Allen express concerns over potential financial market repercussions, comparing the regulatory environment to the unregulated pre-Great Depression era.
Meanwhile, advancements in Hong Kong’s regulations occur alongside pressure from Chinese tech giants, which are advocating for Beijing to support stablecoins backed by the Chinese yuan to counter the dominance of US dollar-backed cryptocurrencies. Analysts speculate that Hong Kong may serve as a testing ground for stablecoin initiatives in mainland China.
The issuance of a yuan-backed stablecoin may facilitate the internationalisation of China’s currency, as the country seeks to reduce its reliance on the US dollar and promote the yuan. Yet, experts assert that the success of such initiatives will hinge on broader economic factors and the overall attractiveness of the yuan rather than solely on technological innovations. Ultimately, the advent of yuan-backed stablecoins may enhance demand for high-quality liquid assets but will not independently drive the de-dollarisation of global transactions.