China is stepping up research on stablecoins and closely watching global developments in the field, but for now Hong Kong is set to serve as Beijing's sandbox for digital currency innovation.
According to reports in the Financial Times this week, Chinese authorities convened a group of cryptocurrency specialists to discuss the topic, sending a stern message. The main point, according to the participants, is that 'any stablecoin proposal must reflect national conditions' and comply with capital controls. Central bank officials also reportedly expressed concern that too free a development of stablecoins could encourage capital flight.
While cryptocurrencies are de facto banned for trading in mainland China, Hong Kong has functioned as a cryptographic sandbox for Beijing. The Hong Kong Monetary Authority (HKMA) recently passed a law allowing licensed companies to issue stablecoins backed by fiat currencies.
However, only a limited number of licences will be available starting next year, and at the moment only one of China's four big state-owned banks will initially be able to participate.
Central Bank Governor Pan Gongsheng recently acknowledged the disruptive potential of stablecoins in the payments industry, but the broader view in Beijing remains wary. In particular, the use of stablecoins pegged to the dollar has been referred to as a threat that could further reinforce the dollar's status as a global reserve currency.
In spite of this, even China's state-owned enterprises are stepping up research into the uses of stablecoins for payments and settlements. Some large state-owned companies operating in Hong Kong have already applied for licences to issue stablecoins, and the HKMA has not ruled out the possibility of approving renminbi-pegged stablecoins for offshore transactions.
However, any stablecoin ecosystem needs a solid underlying blockchain. PANews analyst, known as 'Frank', has a new theory on which platforms could form the basis of Chinese stablecoin development.
The first is Conflux, currently the only regulated public blockchain in China. Not only does Conflux have a native token (CFX), but Frank's analysis of the project's white paper shows that it is already compliant with global regulatory standards. This could make it a prime candidate for stablecoin development.
Frank's other choice for a long-term base is ChainMaker. Not only does it have an enterprise-grade infrastructure, but it also has government support. The network has been included in official state planning documents and its main partner is a large state enterprise. However, a disadvantage of ChainMaker is that it is a consortium blockchain, which may not be as useful for cross-border applications.
Also BSN and Xinghuo are considered possible foundations for stablecoin development in China. However, both are permissioned blockchains and neither has a native token.
The absence of native tokens makes them incompatible with token-based stablecoins. Moreover, token-less blockchains have found greater application in industrial use cases within China.
