Although China has closed its doors to decentralized cryptocurrencies, Circle CEO Jeremy Allaire believes that stablecoins could play a role in the proliferation of China’s digital yuan.

Allaire, who heads up the company behind the United States dollar-backed stablecoin USD Coin (USDC), suggested that a yuan-based stablecoin might be China’s best bet for driving the adoption of its national currency in an interview with the South China Morning Post.

“If eventually the Chinese government wants to see the RMB [yuan] used more freely in trade and commerce around the world, it may be that stablecoins are the path to do that more than the central bank digital currency.”

China cracked down on the use of cryptocurrencies in 2021 while simultaneously blazing the trail for the trial, testing and issuing of its digital yuan central bank digital currency (CBDC). As of January 2023, the Chinese government noted that some 13 billion digital yuan are in circulation.

Interestingly, the digital yuan website claims that the currency will replace the dollar, Tether (USDT) and all other stablecoins, while stipulating that the CBDC will not be a stablecoin. The website allows users to exchange cryptocurrency for digital yuan through MetaMask or its own conversion portal.

Allaire conceded that China is unlikely to warm toward using decentralized cryptocurrencies and stated that Hong Kong’s progressive attitude toward the crypto sector could signal subversive support from the mainland.

The Circle CEO also noted that moves by various governments and central banks around the world to develop CBDCs that move away from “legacy technology into more modern distributed ledger technology” was positive, but it should not be misconstrued as a move toward accepting decentralized and self-sovereign systems:

“There’s a whole bunch of things that are useful from that, but I view that as very different from the work that the private sector does to innovate on the public internet.”

Nevertheless, the digital yuan is finding its way across Chinese borders. Singapore-based, cryptocurrency-friendly bank DBS has developed a digital yuan merchant solution allowing Chinese businesses to receive payments in the CBDC.

The service allows clients based in mainland China to receive or collect digital yuan and have settlements made directly to yuan-based bank accounts.