Chinese tech giants pause stablecoin plans after Beijing steps in

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Chinese technology giants have halted plans to issue stablecoins in Hong Kong, after Beijing raised concerns about the rise of privately controlled currencies.

The companies, including Alibaba-backed Ant Group and e-commerce group JD.com, said over the summer they would participate in Hong Kong’s pilot stablecoin program or issue virtual asset-backed products, such as token bonds.

But they have since put their stablecoin ambitions on hold after receiving instructions from Chinese regulators, including the People’s Bank of China (PBoC) and the Cyberspace Administration of China (CAC), not to proceed, according to several people familiar with the situation.

People’s Bank of China (PBoC) officials have advised against participating in a stablecoin ICO due to concerns about allowing technology and brokerage groups to issue any type of currency, five people said.

The issuance of privately run stablecoins was also seen as a challenge to the People’s Bank of China’s digital currency project, e-CNY, one of the people familiar with the central bank’s briefings told technology groups.

“The real regulatory concern is who has the ultimate right to issue the currency – the central bank or any private company in the market?” said a different person.

Stablecoins are digital tokens linked to fiat currencies such as the US dollar and are the cornerstone of cryptocurrency trading.

The Chinese authorities’ response highlights how eager regulators around the world are to respond to the rise of stablecoins, especially after the Trump administration defended them as a pillar of mainstream finance and a way to demonstrate the dominance of the US dollar.

The European Central Bank said widespread adoption of dollar-denominated stablecoins could hamper its ability to control monetary policy.

The Hong Kong Monetary Authority, the territory’s de facto central bank, in August began accepting applications for stablecoin issuers, establishing itself as a testing ground for the mainland.

In China, interest in the Hong Kong program swelled over the summer, with some officials suggesting that renminbi-denominated stablecoins would boost international use of the yuan.

“The strategic purpose behind the US’s promotion of stablecoins is to maintain the supremacy of the dollar,” said Zhou Guangyao, China’s former vice finance minister, in June, and it is crucial for China to respond to this financial challenge by developing a stablecoin linked to the renminbi.

“We have to take full advantage of the pilot programs in Hong Kong,” Zhu said at a forum in Beijing last June. “The RMB stablecoin should be integrated into the overall design of the national fiscal strategy.”

But two people familiar with the tech groups’ plans said financial regulators were taking a more cautious approach following a speech by former People’s Bank of China Governor Zhou Xiaochuan in late August.

At a closed-door financial forum in Beijing in July, Zhu urged a comprehensive assessment of stablecoins and the potential systemic risks they pose.

“We need to be vigilant against the risks of excessive use of stablecoins to speculate on assets, as misdirection may lead to fraud and instability in the financial system,” Zhu said at the China Finance 40 Forum, according to an article later published by the state-backed think tank.

Zhou urged to “carefully evaluate the real demand for coding as a technological basis.”

He added: “Although many believe that stablecoins will reshape the payments system, in reality, there is little room for cost reduction in the current system, especially in retail payments.”

The People’s Bank of China declined to comment. The Hong Kong Monetary Authority said it does not comment on market rumours. CAC, Ant and JD.com did not respond to requests for comment.