According to a Financial Times report, China plans to allow the launch of its first stablecoin. Hong Kong policymakers recently passed legislation that allows licensed businesses to issue tokens backed by any fiat currency. According to Chen Lin, director of the Centre for Financial Innovation and Development at the University of Hong Kong, China has become increasingly interested in crypto and stablecoins. The coming of the US dollar-backed stablecoin era was seen as a way to revive the USD’s lustre. A yuan-pegged stablecoin could challenge the USD stablecoin sector and further strengthen China’s de-dollarization plans.

Is a Yuan-Pegged Crypto a Part of China’s De-Dollarization Plans?

Stablecoins have seen a significant rise in popularity over the last few years. Dollar-pegged cryptocurrencies are also seen as a way to revive the US dollar. According to David Sacks, the White House cryptocurrency czar, dollar-pegged crypto assets will increase the demand for the US dollar. China’s latest move could put a dent in Sacks’ words.

China has made substantial inroads in promoting the yuan as an international currency. China has also launched the Cross-Border Interbank Payment System (CIPS) as an alternative settlement system to SWIFT. CIPS uses the yuan instead of the US dollar. The country’s latest stablecoin initiative may be another way of combating the US dollar.

Will the Yuan Take Over?

The falling desire for US dollar-based assets is no secret. A BlackRock report recently highlighted how central banks around the world are ditching dollar-based assets for alternatives such as gold. The growing distrust of US foreign policy and trade, along with record-high debt, has made countries turn their backs on the greenback. BlackRock CEO Larry Fink also highlighted how the dollar may not remain the global reserve currency forever.

Despite its lacklustre performance, the US dollar continues to dominate global trade. The US dollar is the most liquid currency in the world. While the USD is losing its previous charm, it will be extremely difficult to replace the dollar anytime soon.