China’s top policy advisors are proposing a regional digital currency similar to the stablecoins that would be backed by four major Asian currencies: the Japanese yen, the Korean won, the Hong Kong dollar and the Chinese yuan.
Thus, the proposal revealed on Thursday describes the currency as a „stablecoin“. This is a term for crypto-currencies designed to maintain their value and backed by a reserve currency. However, it does not mention crypto or Blockchain technology.
Also, the People’s Bank of China (PBOC) would lead the team for this project. The basket of underlying guarantees would follow the International Monetary Fund (IMF) Special Drawing Rights (SDR) model. In which each country’s currency is assigned a different weight according to its economy.
The Special Drawing Rights model is created as an international reserve asset and serves as a unit of account of the IMF. Its value is determined daily based on spot exchange rates. It provides the basis for calculating the interest rate charged to members on loans.
The start of the stablecoin proposal
The proposal resembles Libra’s original Facebook vision, before the project changed its main objectives. Thus, the proposed stablecoin would help facilitate trade between the four countries. Key situation for the economic recovery of the region after the Coronavirus
In this respect, they would improve cross-border settlement and clearing services with a new payment network and a digital portfolio for companies.
Neil Shen, founding partner and manager of Sequoia China and member of the Chinese upper house, presented the proposal to Chinese legislators during the two sessions, which can be considered the largest annual political meeting in the country.
Shen also attended the first session of the Chinese People’s Political Consultative Conference (CCP) on Thursday. The CCP is essentially a consultative upper house where a number of independent organizations and members help the government make decisions at the national level.
Proposals coming out of the PCC do not usually have the same level of influence as the more concrete bills being discussed in the National People’s Congress (NPC). For, the bills produce significant changes in laws and regulations. However, in this case the proposal could have a certain power of retention.
What advantages would they bring?
As the stablecoins are gaining strength recently, the proposal has different advantages that would allow the growth of these Asian countries after the crisis by the COVID-19.
With regard to the growth of stablecoins, and their stability because they are backed by official currencies, they are key to the financial stability of many regions, such as Asia or the European Central Bank.
Therefore, the private sector companies
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in Asia, directed and supervised by PBOC, would launch the stablecoins and develop the project with the latest financial technologies. In this way, the users of the company would be able to store the stablecoins in a wallet and deposit the cash as reserves to support their stablecoins.
In addition, the Hong Kong Monetary Authority and the PBOC could create a framework to regulate cross-border transactions of stablecoins. This will enable them to manage the risks and discourage money laundering as proposed.
According to Chinese policy advisors, stablecoins could be launched earlier than China’s domestic digital currency. This could pave the way for their deployment by the