The growing adoption of stablecoins across Asia marks a significant shift in the region’s financial landscape.

Traditionally, U.S. dollar-pegged stablecoins like USDT and USDC primarily dominate the cryptocurrency topography.

However, there is slight shift these days as Asian markets are now embracing stablecoins that are linked to their own respective local currencies.

This trend highlights efforts to enhance monetary sovereignty, boost financial inclusion, and modernise payment systems in an increasingly digital world.

From Singapore’s XSGD to Indonesia’s IDRT and emerging pilots in Thailand and the Philippines, stablecoins are reshaping the region’s economic strategies.

As seen in a report by Tiger Research, this sort of  transition showcase the region’s strategic push to reduce reliance on the U.S. dollar in cross-border trade, investment, and domestic financial systems.

Most of these countries believe that local-currency stablecoins may provide an opportunity for them to retain control over monetary policies and mitigate the risks associated with foreign exchange volatility.

One of the key drivers of this movement is the desire to maintain monetary sovereignty as stablecoins that are pegged to local currencies allow governments to align digital financial systems with their national economic objectives.

It is particularly important in countries with a history of currency crises, where stablecoins can offer a tool for greater economic stability and resilience.

These initiatives also seem to complement ongoing efforts to develop Central Bank Digital Currencies (CBDCs), as both digital assets aim to modernise traditional financial systems.

Leading Stablecoins in Asia

StraitsX (XSGD)

StraitsX’s XSGD, pegged to the Singapore dollar, has emerged as one of Asia’s most prominent local-currency stablecoins.

Operating on Ethereum and other blockchain networks, XSGD boasts a market cap exceeding $18 million.

Its utility spans cross-border payments, digital wallet top-ups via Grab, and reduced currency conversion costs for businesses and traders in Southeast Asia.

Singapore’s progressive regulatory framework, underpinned by the Monetary Authority of Singapore’s Payment Services Act, has significantly bolstered XSGD’s adoption.

Rupiah Token (IDRT) and StraitsX XIDR

Indonesia features two notable stablecoin projects: the Rupiah Token (IDRT) and StraitsX’s XIDR.

IDRT, issued by PT Rupiah Token Indonesia, is widely used on centralised and decentralised exchanges, enabling seamless participation in decentralised finance (DeFi) ecosystems.

With a market cap of $4.8 million, IDRT has gained traction among crypto enthusiasts seeking exposure to the Indonesian Rupiah.

On the other hand, XIDR operates within the broader StraitsX ecosystem and supports multiple DeFi platforms.

Despite its smaller market cap of $124,960, XIDR’s integration into Indonesia’s evolving blockchain infrastructure positions it for future growth.

Both projects exemplify how stablecoins can bridge traditional finance and Web3 technologies, enhancing accessibility for users and institutions alike.

Tether (CNHt)

Tether CNHt is a stablecoin that is pegged to the offshore Chinese Yuan (CNY). It serves as a stablecoin for international trade involving Chinese businesses.

Despite China’s strict regulations on cryptocurrency activities, CNHt allows businesses to settle transactions in Yuan without the volatility associated with exchange rates.

It competes with the official Chinese Digital Yuan, which has seen more widespread adoption in China due to government promotion and integration into domestic financial systems.

GMO JPY (GYEN)

GMO JPY (GYEN), issued by GMO Trust, is a stablecoin pegged to the Japanese Yen (JPY) with a market cap of $10 million.

Unlike other stablecoins targeting retail or emerging markets, GYEN focuses on institutional clients, providing a secure and regulated alternative for businesses dealing in Japanese Yen.

While not currently allowed for use in Japan, the country’s proactive stance on blockchain technology suggests potential for future regulatory adaptation.

Emerging Pilots in Thailand and the Philippines

Thailand and the Philippines have demonstrated regulatory openness toward stablecoins.

Thailand recently approved its first ever cross-border payment solution that uses stablecoins, leveraging blockchain technology to facilitate seamless transactions for tourists and expatriates.

Similarly, the Philippine central bank has launched a peso stablecoin pilot to explore its potential for financial inclusion and cross-border remittances.

Coinbase’s interest in developing Thai Baht and Philippine Peso stablecoins further underscores the region’s strategic importance.

These initiatives aim to make transactions faster, cheaper, and more accessible, fostering innovation in Southeast Asia’s digital finance landscape.

It’s Not Without Any Risks

While there have been advancements in the development and adoption of stablecoins, setbacks have also occurred.

The implosion of the TerraUSD stablecoin in May 2022, which was designed to maintain a USD$1 peg through an algorithm and a linked token called Luna, led to a massive sell-off that shook the cryptocurrency market.

Tether, the largest stablecoin by market capitalisation, and also from the United States, has also faced scrutiny regarding the composition of its reserves and its ability to maintain its peg during times of market volatility.

Another instance, not too long ago takes place in June 2021, as the collapse of IRON Finance’s algorithmic stablecoin on the Binance Smart Chain demonstrated the risks of bank runs and rapid de-pegging events.

This incident further underscored the need for robust mechanisms to manage stability.

It’s also best to note that although these examples are predominantly from outside Asia, the region is not immune to stablecoin challenges.

Benefits and Challenges of Stablecoin Adoption

Advantages of Stablecoins in Asia

The list of incidents I mentioned above is not a way to discourage anyone from inching closer to using stablecoins. It’s merely a reminder of its risks.

And despite those incidents, stablecoins do offer several compelling benefits to Asian economies.

They promote monetary sovereignty, allowing governments to control their monetary policies and reduce reliance on foreign currencies, thereby mitigating exposure to foreign exchange risks.

Furthermore, stablecoins enhance financial inclusion by providing an accessible entry point for the unbanked and underserved populations in Asia, effectively digitizing local currencies.

The benefits extend to cost efficiency, as stablecoins enable faster and cheaper cross-border payments, eliminating intermediaries and reducing transaction fees.

Moreover, local-currency stablecoins streamline trade by minimizing currency conversion complexities, fostering regional economic cooperation, and facilitating smoother transactions for businesses and individuals.

Overcoming Its Obstacles

But nothing good comes without challenges. Here are some of the challenges I can think of that can hinder their widespread adoption.

We start off with the establishment of a clear and consistent regulatory frameworks. It must be the upmost critical priority in order to make sure stablecoins remain, stable.

Such frameworks are essential for ensuring transparency, preventing misuse, and fostering consumer protection, which are crucial for building trust in stablecoins.

Another challenge is the limited awareness and scepticism among users and businesses alike, particularly in less tech-savvy regions.

Educational initiatives and user-friendly platforms are also needed in order to increase understanding and encourage broader acceptance of stablecoins.

Finally, stablecoins face competition from CBDCs, as many governments prioritise CBDC development over private stablecoins.

This creates a competitive landscape for adoption and integration, requiring stablecoin projects to demonstrate their unique value propositions and interoperability with existing and evolving financial systems.

Regulatory Frameworks Around Asia

Several Asian countries are actively developing or have developed their very own regulatory frameworks to address the complexities of stablecoin operations.

Singapore for starters, being one of the “leader in digital assets”, has finalised its stablecoin regulatory framework.

On August 15, 2023, the Monetary Authority of Singapore (MAS) announced a new framework to ensure high value stability for stablecoins regulated in Singapore. This framework applies to single-currency stablecoins (SCS) pegged to the Singapore Dollar or any G10 currency that are issued in Singapore.

Similarly, Hong Kong is developing regulations focused on fiat-backed stablecoins. By prioritising these assets, Hong Kong aims to mitigate risks and promote investor protection.

Japan, known for its proactive stance on digital currencies, has established a regulatory foundation under its Payment Services Act. This framework provides clear guidelines for the issuance and operation of stablecoins within the country.

By incorporating these regulatory measures, Asian nations can strive to balance innovation with consumer protection, fostering a stable and trustworthy ecosystem.

The Role of Collaboration

The success of stablecoin adoption in Asia hinges on collaboration between governments, fintech companies, and traditional financial institutions.

Strategic partnerships can drive innovation, address technical and operational challenges, and build trust among stakeholders.

Take for example of how Singapore’s StraitsX partnered with Grab and Ant International to launch a blockchain-based cross-border payment system, showcasing the power of public-private collaboration in driving adoption.

In other parts of Asia such as in Hong Kong, IDA, a fintech company, is collaborating with The Bank of East Asia to explore using a 1:1 HKD-pegged stablecoin for enhancing digital asset adoption.

The Korean government is also working with private sector companies like Ground X (the blockchain subsidiary of Kakao) to develop a stablecoin ecosystem and explore use cases for CBDCs.

Like I’ve mentioned earlier, in Japan, the country already have an established and clear regulatory framework under the Payment Services Act (PSA), despite just only having the GMO JPY stablecoin approved for domestic use.

Hence, to further accelerate its usage, the Japanese government is actively collaborating with consortia of banks and technology companies to research and develop stablecoin and CBDC infrastructure.

These examples illustrate how collaborative efforts can accelerate the development and integration of stablecoins into existing financial systems, paving the way for greater adoption and innovation across Asia.

Future Implications for Asia’s Digital Economy

The rise of stablecoins in Asia represents more than a shift in monetary policy; it signifies a broader transformation of the region’s digital economy.

By reducing dependence on the U.S. dollar and promoting financial sovereignty, stablecoins pave the way for sustainable economic growth and innovation.

They also provide a foundation for enhancing regional cooperation, as neighbouring countries explore shared solutions for cross-border trade and remittances.

As stablecoin adoption grows, it is likely to intersect with other emerging trends, such as DeFi, Web3, and tokenized assets.

This convergence could unlock new opportunities for businesses and consumers, driving greater efficiency and inclusivity in Asia’s financial systems.

Featured image credit: Edited from Freepik

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