ExplainerHow some Chinese exporters benefit from US dollar-backed stablecoins

In this explainer, the Post outlines four roles that US dollar-backed stablecoins play in China’s overseas trade, based on a recent analysis by Zou Chuanwei, the president of the Jiangsu Jinke Research Institute on Digital and Technology Finance, published in Tsinghua Financial Review.

How are Chinese traders using US dollar-backed stablecoins?

First, some overseas importers face regulatory barriers that restrict them from using traditional US dollars. They can, however, pay with US dollar-backed stablecoins. Overseas importers use the latter to buy goods in mainland China, with onshore converters turning the digital assets into yuan.

For Chinese exporters, the process remains similar to that of a traditional transaction, except third-party institutions – such as stablecoin payment agencies – provide assistance when deals are large and buyers cannot travel to mainland China.

In this case, a stablecoin payment agency – not always the issuer – acts as an intermediary. It verifies the client’s identity and transfers US dollar-backed stablecoins to a licensed virtual asset exchange in Hong Kong, where they are converted into US dollars or Hong Kong dollars.

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What’s the hype about stablecoins?

What’s the hype about stablecoins?

The exchange relies on over-the-counter liquidity providers to support the conversion and also reviews the transaction, including verifying compliance with the issuer and monitoring the circulation of funds.

The converted funds are then transferred to the Chinese exporter, who completes standard tax refund and foreign exchange settlement procedures. The exporter only coordinates with the stablecoin payment agency to complete the payment receipt, resolving the challenge posed by blocked overseas banking services.

Third, US dollar-backed stablecoins can help address inefficiencies and exchange rate risks in traditional cross-border settlements.