Challenges and Obstacles Surrounding CNY Stablecoin and Chinese

12 juil. 2023

This is Why a CNY Stablecoin and Chinese CBDC are Unlikely to Emerge

According to Jeremy Allaire, the CEO of Circle, a stablecoin pegged to the Chinese Yuan (CNY) would be a more favorable choice than a Central Bank Digital Currency (CBDC). However, the realization of a yuan stablecoin is highly improbable, just as a Chinese CBDC would not pose a challenge to the dominance of the US dollar.

The primary reason behind this is that the core principles of Beijing's monetary policy contradict the concept of a freely convertible yuan. The People's Bank of China (PBoC) maintains strict control over the yuan's exchange rate, keeping it within a narrow range and preventing it from freely floating in international markets. This control enables China to manage its export prices and domestic economy effectively. However, it also means that the yuan cannot be freely utilized offshore like the Euro or the USD, and there are strict capital controls restricting the amount of currency that can be taken out of the country.

The more a country desires its currency to be widely adopted internationally, the more it must be willing to relinquish control. As highlighted by Gita Gopinath, the First Deputy Managing Director of the International Monetary Fund (IMF) in a speech in 2022, these characteristics are not indicative of a global currency. Currently, the yuan is used for only approximately 3.2% of global payments as of January 2022.

Gopinath emphasized, "If a country aspires to have a global currency, it needs to have fully and freely mobile capital, a fully liberalized capital account, and a convertible exchange rate, which is not the case in China at present."

Currency manipulation has been a contentious issue in the relationship between the United States and China, with the U.S. Department of the Treasury designating China as a currency manipulator in 2019.

Interestingly, Taiwan has also drawn attention as a currency manipulator from Washington. However, unlike China, Taiwan does not artificially suppress its currency, the New Taiwan Dollar (TWD), to boost exports. Instead, Taiwan intervenes to prevent rapid appreciation of its currency, which could harm its export-oriented economy.

This issue has been a subject of concern since 1989 when the U.S. Senate subcommittee on international trade held a hearing on currency manipulation. David Mulford, then Under Secretary-Designate of the Office of International Affairs at the U.S. Department of the Treasury, highlighted Taiwan's substantial intervention in the foreign exchange market and the absence of significant exchange rate appreciation despite the country running significant external surpluses.

Taipei denies being an active currency manipulator or implementing capital controls, citing the openness of foreign investment in its stock market and the unrestricted convertibility of foreign currency.

However, one common characteristic shared by both Taipei and Beijing is that neither capital's central bankers are willing to relinquish control of their currencies to the market.


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