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Chinese tech giants have applied for stablecoin licences

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Sources say Chinese policymakers receptive to idea of yuan

stablecoin

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Exporters using Tether, undermining yuan in trade

settlement

July 3 (Reuters) - China's tech giants JD.com ( JD ) and

Alibaba affiliate Ant Group are urging the central bank to

authorise yuan-based stablecoins to counter the growing sway of

U.S. dollar-linked cryptocurrencies, people with direct

knowledge of the discussions said.

The two firms propose China allow the launch of stablecoins

in Hong Kong pegged to its offshore yuan to help promote

global use of the Chinese currency and fend off the dollar's

growing digital influence, the two sources said.

The moves come as Hong Kong races the United States in

setting up a regulatory framework for stablecoins, competing for

a greater reach in global digital finance and trade.

Their lobbying efforts, if successful, would mark a major

shift in the way Beijing views cryptocurrencies, which it banned

in 2021, and could reshape China's strategy in promoting

international use of the yuan.

Stablecoins are digital tokens, in the form of

cryptocurrencies pegged to liquid assets, so far mostly the U.S.

dollar but also in some cases gold or other currencies.

Their underlying blockchain technology enables instant,

borderless and round-the-clock transfer of funds at low cost,

giving them the potential to disrupt traditional cross-border

payment systems.

Both JD.com ( JD ) and Ant already plan to issue stablecoins backed

by the Hong Kong dollar, after the island's new legislation

takes effect on August 1.

But in closed-door discussions with the People's Bank of

China, JD.com ( JD ) has argued that offshore yuan stablecoins are

urgently needed as a tool to promote yuan internationalisation,

the sources told Reuters.

Such a view has also been expressed by other industry

players.

"The global expansion of U.S. dollar stablecoins is posing

fresh challenges to yuan internationalisation," Wang Yongli,

co-chairman of Digital China Information Service Group

said in an article posted on his social media

account last month.

"It would be a strategic risk if cross-border yuan payment

is not as efficient as dollar stablecoins," said Wang, former

vice head of Bank of China.

The PBOC, JD.com ( JD ) and Ant did not immediately respond to

Reuters requests for comment.

DOLLAR DOMINATES

The global stablecoin market is currently small at about

$247 billion, according to crypto data provider CoinGecko.

However, Standard Chartered Bank estimates it could grow to $2

trillion by 2028.

Over 99% of stablecoins are U.S. dollar-denominated,

according to the Bank for International Settlements.

China has long harboured ambitions for the yuan to be a

global currency, similar to the euro or dollar and reflecting

its weight as the world's second-biggest economy.

One roadblock to this aim, however, is its reluctance to

remove tight capital controls.

The yuan's share as a global payment currency fell to 2.89%

in May, the lowest in almost two years, according to payment

platform SWIFT. The dollar commands a 48.46% market share.

"China has reached a point where it can no longer avoid

taking action," said Xiao Feng, chairman of Hong Kong-based

crypto exchange operator HashKey.

Many Chinese exporters now use dollar stablecoins as "more

and more overseas merchants are sending payments in USDT", he

said, referring to the world's more popular stablecoin Tether.

Several exporters told Reuters capital controls at home,

geopolitical tensions and the risks of currency volatility in

smaller emerging markets have spurred the shift into

stablecoins.

Crypto HK, Hong Kong's biggest crypto OTC exchange, said the

monthly volume of trading in the USDT token by its Chinese

clients for trade settlement purposes has jumped five-fold since

2021.

INEVITABLE?

Marking a major U.S. shift, President Donald Trump backed

stablecoins days after his inauguration in January and is

establishing a regulatory framework that helps legitimise

dollar-pegged cryptocurrencies.

Even in China, where cryptocurrencies remain banned,

policymakers are becoming increasingly interested in

stablecoins.

PBOC governor Pan Gongsheng said last month the boom in

digital currencies and stablecoins poses huge challenges to

financial regulation.

PBOC advisor Huang Yiping told local media in a recent

interview that an offshore yuan stablecoin in Hong Kong is "a

possibility".

Ant is preparing to apply for stablecoin licences in both

Hong Kong and Singapore, one of the sources said. Ant is also

preparing for offshore yuan stablecoins, he said.

JD.com ( JD ) chairman Richard Liu has also disclosed plans to

apply for such licenses in major currency countries globally, in

a bid to facilitate foreign exchange and cross-border payment.

In discussions with the PBOC, JD.com ( JD ) argued a yuan-pegged

stablecoin was needed because the Hong Kong dollar is pegged to

the U.S. dollar, which does not help promote the yuan's use in

trade, one of the sources said.

JD.com ( JD ) has proposed China allow yuan stablecoin issuance in

Hong Kong, before expanding the pilot scheme to offshore markets

within China's free trade zones, said a company source, adding

the suggestion had been well received by regulators.