Chinese political officials offer to create a regional East Asian stablecoin, backed by four different fiat currencies.
The proposal announced on May 21 during China’s biggest political meeting Two Sessions, suggested the creation of joint regional stablecoin, that could be backed by four major currencies including Chinese yuan, Hong Kong dollar, Chinese yuan and South Korean won. The new currency is supposed to stimulate cross-border payments within all four jurisdictions.
According to the local news portal ChainNews, the aim of the proposal is to form a basket of digital stable currencies and try to apply it to cross-border trade payment, in the regulatory sandbox at first. As claimed the local political officer Shen Nanpeng:
Convenient cross-border trade payment and settlement services will promote economic and trade cooperation between China, Japan, and South Korea because trade is a key link to boost the economy after the epidemic.
The purpose of regional stablecoin
The proposed stablecoin is supposed to make easier and faster cross-border payments across the region since trade is crucial for the quicker economic recovery after the global COVID-19 pandemic.
As said in the report, the regional digital stablecoin could help to reduce currency conversion costs for cross-border trading companies, that use foreign currencies and have to deal with exchange rate fluctuation risks. Meanwhile, the joint digital currency can provide a relatively stable exchange rate and a safe and secure pricing unit.
Furthermore, the joint currency is meant to improve the efficiency of the international payment system, to reduce hight handling fees, and make the payment processes more transparent by using blockchain technology and setting up electronic wallets.
Moreover, as it is said in the report, the new stablecoin could serve as a test case for other national digital currencies. “ It is suitable to be initiated and promoted by the private sector, and it should be tried first in a controlled scenario”, states the report.
The project of joint East Asian stablecoin, however, has some similarities with Facebook’s Libra project, that attempted to create the world’s single stablecoin. The ambitious project met a lot of resistance from regulatory authorities across various countries and had to alter its plans to change the current financial system and reconcile with the idea of transition to supporting existing government-backed currencies, like the US dollar and the euro.
Not the same as digital yuan
The People’s Bank of China is supposed to be in charge of the project. However, the idea of joint regional stablecoin seems to be separated from China’s local digital currency – digital yuan – project.
The country is developing the digital equivalent of its local fiat currency since 2017. As it was reported, the official testing program started quite a month ago, when digital yuan became available across various business companies to cross the country.
The purpose of national digital currency is to make digital payments more simple and also faster, as the existing system is too slow. It is also known that Chinese CBDC will be available for daily commercial usage as well as for internal bank transfers.