AI and tech stocks slide as summer rally peters out

Stocks

Summary:

Tech and AI stocks slid as Wall Street’s summer rally cooled. Nasdaq and S&P declined, with Nvidia and Palantir falling. Investors rotated into defensive sectors ahead of Powell’s Jackson Hole speech and AI bubble concerns.

Tech stocks were under pressure this week as Wall Street’s AI enthusiasm slowed and investors adjusted portfolios after a strong summer rally.

The Nasdaq Composite fell 0.67% on Wednesday after sliding 1.46% on Tuesday. The tech-heavy index was on track to snap back-to-back weeks of gains.

Meanwhile, the broader S&P 500 fell 0.24% and posted its fourth day of losses in a row. The Dow hovered around the flatline.

Tech stocks had steadily rallied in recent months, lifting the S&P 500 and Nasdaq to a streak of record highs. Now Wall Street is taking a breather while optimism about the AI boom is facing some friction.

Palantir (PLTR), a star of the AI trade, fell 1.1% on Wednesday after falling 9.35% on Tuesday. Meanwhile, Nvidia (NVDA) edged lower by 0.14% on Wednesday after sliding 3.5% on Tuesday.

“Investors rotated out of high-momentum tech stocks, reflecting renewed jitters over the sustainability of the AI trade,” Ulrike Hoffmann-Buchardi, head of global equities at UBS, said in a note.

Investors are also in wait-and-see mode ahead of a critical day for markets on Friday when Federal Reserve Chair Jerome Powell is set to deliver remarks at the Jackson Hole Economic Symposium.

“It’s just a pause that may refresh as investors retrench and rethink how they want to position their tech dollars,” Rob Haworth, senior investment strategy director at US Bank Asset Management Group, told CNN.

Powell’s closely watched speech on Friday could provide signals about the Fed’s potential rate-cutting path and comes at a key inflection points for markets after past months’ ascent to record highs.

AI jitters test Wall Street

Excitement about AI propelled markets higher in recent months, boosted by robust corporate earnings and enormous spending by companies like Meta and Microsoft.

But Wall Street’s eagerness was tested this week after Sam Altman, chief executive at OpenAI, said he thinks the market might be in a bubble.

“Are we in a phase where investors as a whole are overexcited about AI? My opinion is yes,” Altman told reporters last week, according to The Verge.

The OpenAI chief also said he thinks AI will provide value for the economy. “Is AI the most important thing to happen in a very long time? My opinion is also yes,” he said.

Also, researchers at MIT on Monday published a report detailing how the majority of companies testing new generative AI tools are seeing zero returns.

While there was not an explicit catalyst for the decline of tech and AI stocks decline this week, investors said Altman’s comments and the MIT report could be contributing to negative momentum.

AI chip and semiconductor companies Advanced Micro Devices (AMD) and Marvell Technology (MRVL) were each down almost 7% this week.

“Altman’s comments spooked some people when he talked about the AI bubble,” Dan Ives, head of global technology research at Wedbush Securities, told CNN.

“Tech stocks have had a massive run, so I think it’s just typical that investors are starting to take some chips off the table going into Labor Day,” Ives said. “But I believe it’s going to be short lived.”

Big Tech takes a breather

Each of the Magnificent Seven tech stocks — Apple (AAPL), Alphabet (GOOGL), Amazon (AMZN), Meta (META), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA) — fell on both Tuesday and Wednesday, dragging down the broader market.

As of Tuesday, they made up 33.5% of the S&P 500’s total market value, according to S&P Dow Jones Indices, reflecting their outsized influence on the index’s performance.

“Stocks have been on an absolute tear. Valuations have sprinted up,” said Ross Mayfield, an investment strategist at Baird. “The fundamentals are good but not keeping pace with the price action.”

“I think along the way we’ll see pockets of profit taking, even if it doesn’t mark the end of the bull market in general,” Mayfield said.

While tech dragged on the market, about 70% of stocks in the S&P 500 had closed higher on Tuesday, UBS’ Hoffmann-Buchardi said. Sectors that outperformed included consumer staples, utilities and real estate.

It’s a sign that investors are shifting out of Big Tech and AI-related trades and toward more defensive stocks as they reassess the markets. Nvidia as of Monday had surged 93% since a low point in early April.

“We’ve been expecting this type of a pullback,” said Jay Hatfield, chief executive at Infrastructure Capital Advisors, who said he has taken down his exposure to tech in recent months.

It’s also the start of a historically weak season for stocks, Hatfield said. “We’re neutral on the market right now, but still really bullish for year end.”

Palantir is still up 106% this year. But shares in Palantir are down six days in a row and had dropped as much as 9.8% on Wednesday before paring losses, reflecting the volatility in AI stocks.

“Now we’re getting the downward momentum,” Hatfield said. “Palantir is like the poster child for excessive valuation, and those investors are learning that the momentum works in both directions.”

Source: cnn

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Adam

Economic

Federal Reserve officials worried at their July meeting about the state of the labor market and inflation, though most agreed that it was too soon to lower interest rates, minutes released Wednesday showed. The meeting summary depicted a divergence of opinion among the central bankers, whose vote to hold their key rate steady came despite objections from two Fed governors who argued in favor of cutting.

Policymakers noted rising threats to the economy that would warrant monitoring, though they largely agreed that their current stance was the appropriate way to go.

“Participants generally pointed to risks to both sides of the Committee’s dual mandate, emphasizing upside risk to inflation and downside risk to employment,” the minutes noted. While “a majority of participants judged the upside risk to inflation as the greater of these two risks” a couple saw “downside risk to employment the more salient risk.”

Governors Christopher Waller and Michelle Bowman voted against the decision to hold rates steady, preferring instead that the Federal Open Market Committee start lowering its key rate. The fed funds rate, which sets what banks charge each other for overnight lending but is used as a benchmark for other consumer rates, has been targeted between 4.25%-4.5% since December.

This was the first time that multiple governors voted against a rate decision in more than 30 years.

President Donald Trump’s tariffs were a central part of the discussion.

“Regarding upside risks to inflation, participants pointed to the uncertain effects of tariffs and the possibility of inflation expectations becoming unanchored,” the minutes said. The document also noted “considerable uncertainty remained about the timing, magnitude, and persistence of the effects of this year’s increase in tariffs.”

Coming against an increasingly heated political backdrop, the meeting saw officials express varying opinions on where they see the economy and policy headed. A staff assessment saw economic growth as “tepid” in the first half of the year though unemployment remained low.

Various participants expressed uncertainty over the impact that tariffs would have on inflation while others worried that the jobs picture was starting to show cracks and would need a policy boost to prevent further damage.

“Participants noted that the Committee might face difficult tradeoffs if elevated inflation proved to be more persistent while the outlook for the labor market weakened,” the summary said. Decisions on rates would depend on “each variable’s distance from the Committee’s goal and the potentially different time horizons over which those respective gaps would be anticipated to close.”

The meeting came just two days before a Bureau of Labor Statistics release showing that nonfarm payrolls growth had not only remained weak in July but also that June and May had seen much weaker growth than originally reported.

Even without that information in hand, Fed officials noted that “downside risk to employment had meaningfully increased with the slowing of the growth of economic activity and consumer spending, and that some incoming data pointed to a weakening of labor market conditions.”

The minutes were released two days ahead of the main event for the Fed this week: Chair Jerome Powell delivers his keynote address Friday morning during the central bank’s annual symposium at Jackson Hole, Wyoming.

Powell is expected to use the speech to indicate at least a short-term direction for the Fed regarding rates as well as a longer-term view on policy.

Trump has exerted fierce political pressure on the Fed to cut rates. The president has berated Powell as “stupid,” “a loser” and other invectives while also criticizing the board.

With the resignation earlier this month of Governor Adriana Kugler, Trump will get to appoint another of his own candidates to the seat. Powell’s term as chair expires in May 2026, though he can stay on as governor if he wishes through 2028. In the latest wrinkle, Trump has demanded the resignation of Governor Lisa Cook amid claims that she committed mortgage fraud regarding federal loans she received for properties in Georgia and Michigan.

In the case of the Powell seat, the White House has identified 11 potential candidates, including several current and past Fed officials along with economists and Wall Street strategists.

Source: cnbc

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Winkelmann

Economic

Commodity

Forex

The global energy landscape has been undergoing a profound transformation − and the Middle East is at the heart of it. Traditionally viewed as a crude oil exporter, the region has rapidly evolved into a major refining and trading hub.This shift is not just about rapid development of infrastructure − it’s also about global influence, and it is prompting a necessary re-evaluation of how gasoline produced in the broader region is priced.

Since 2017, refining capacity in the Gulf region has expanded by a third to more than 10.5 million barrels per day. This growth reflects a determined strategy by regional producers to move downstream and capture more value from their hydrocarbon resources.The result is a significant increase in gasoline output from 1.7 million bpd to nearly 2.4 million bpd, enabling the region to not only meet domestic demand but also export surplus volumes.Gasoline exports from the Middle East have more than doubled over the same period, rising to 654,000 bpd.

These flows are also becoming increasingly global.

Although the primary markets for supply and delivery of gasoline and other products remains the Gulf region itself.The regional demand comes from the east coast of Africa, Pakistan, the Red Sea, sporadically the Mediterranean. And there is supply competition from west coast of India and the Red Sea.The market beyond these territories is really global: Asia, Singapore, the US and Australia.

To handle the complexity and extended reach, the big state-owned oil majors in the Gulf region have created their own global trading teams. The move has given them the necessary tools to react to market moves and positions during Asian, European and US trading days. These trading teams rival the best in the world on any scale.However, despite the transformation in production and markets, the pricing of Middle East gasoline has remained anchored to a market that no longer reflects regional realities.

Historically, gasoline produced in the Gulf region has been priced using values derived from the Singapore market, adjusted for the cost of freight. This pricing mechanism made sense when Singapore was the primary destination for lower Middle East exports.However, today, only a small fraction − just 7 per cent − of the region’s gasoline exports are shipped to Singapore. The rest are distributed across a diverse set of markets, each with its own supply-demand dynamics.Moreover, the reliance on freight-adjusted “netbacks” introduces volatility and price dislocations.

Tanker rates have become increasingly unpredictable, driven by disruptions along key shipping routes and broader geopolitical tensions. These fluctuations can obscure the true value of the product, making it harder for buyers and sellers to transact with confidence.In response to these challenges, a new pricing mechanism has emerged to reflect actual trading activity during the UAE business day, which is designed to capture local market fundamentals that reflect the region’s role in the wider markets that it delivers to.

Called “MEBOB”, the pricing mechanism lines up with Europe’s benchmark Ebob and RBOB, the measure for the US gasoline.These benchmarks, along with Singapore’s gasoline, trade as a global complex, and traders use derivatives to balance price and manage exposure to changing values worldwide.It follows the principle that the price of refined products in the Gulf should reflect the value of the commodity in the region and play its due role in the global gasoline trading complex.

The new mechanism is more than a technical innovation and is a recognition of a structural shift in global energy markets.The Middle East is no longer a passive participant in refined product trade; it is a price-setting region. Its refineries are among the most advanced in the world, its export reach is global, and its trading activity is increasingly centred in regional hubs like Fujairah and Jebel Ali.Of course, the success of any new benchmark depends on adoption. Market participants will need to see consistent liquidity, transparency, and alignment with physical trade.

But the rationale is clear: pricing Middle East gasoline based on a market thousands of miles away, with limited relevance to regional fundamentals, is not optimal.As energy flows become more multipolar and regional hubs rise in prominence, pricing mechanisms must evolve.The Middle East’s refining expansion demands a benchmark that reflects its new role − not just as a producer, but as a global products supplier and one of the levers in global prices.

Source: THENATIONALNEWS

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Damon

Russia-Ukraine Conflict

European NATO leaders must not be naive when discussing a Ukraine peace force but face up to the reality that they would need to deploy tens of thousands of troops to the country for the long term, the head of Germany's soldiers' union said.

U.S. President Donald Trump is seeking to broker peace between Moscow and Kyiv but has ruled out sending U.S. troops to Ukraine.

French President Emmanuel Macron and British Prime Minister Keir Starmer have both spoken in favour of troop deployments in a post-war settlement as part of a coalition of the willing, with German Chancellor Friedrich Merz also signalling openness to German participation.

Colonel Andre Wuestner, head of the German Armed Forces Association, on Thursday called on European leaders not to play down the military task but be honest about the challenges, even though any quick ceasefire seemed unlikely.

"It won't be enough to have a handful of generals and smaller military units man a command post in Ukraine," Wuestner, whose organisation represents more than 200,000 active and retired soldiers, told Reuters.

"From the very beginning, it must be made clear to Putin — and backed by international forces — that we are totally serious about security guarantees", he said.

"Serious about supporting Ukraine, serious about securing a ceasefire, and serious about our response should Putin attempt another attack on Ukraine."

A "bluff-and-pray" approach would be downright negligent and increase the risk of an escalation, the colonel warned.

He estimated that each of the big countries in the coalition of the willing, such as Britain, France and Germany, would need to deploy at least 10,000 troops to Ukraine for the long run, posing a huge challenge to their already stretched and under-equipped forces.

"The Europeans remain military dwarfs and are already struggling to meet the new NATO commitments they made at the last summit," Wuestner said. "Europe is still a long way from being able to defend itself independently."

Therefore, there was an urgent need to finally speed up armament and strengthening the European pillar of NATO.

Source: Reuters

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Michelle

Economic

Early evidence suggests that White House policy is reducing the size of the immigrant labor force, in turn contributing to a recent drawdown in the overall U.S. labor pool, according to several economists.

CNBC spoke with a range of economists from financial firms, economic research institutions and think tanks, and also reviewed recent research notes and analyses that economists have published on immigration and the job market.

If a reduction in the immigrant labor force is sustained, such a trend would be a concern for the U.S. economy, those experts have said or written.

That's because the economy will increasingly rely on immigrants to fuel population and labor force growth given demographic trends among the U.S.-born populace, like retirements among baby boomers and lower fertility rates, they said.

The downward shift in the immigrant labor force in recent months is "definitive," said Mark Zandi, chief economist at Moody's.

"There's no debate what's going on there," Zandi said.

'Signs are mounting'

President Donald Trump has pursued an immigration agenda that he's referred to as "very aggressive."

The White House has sought to expand and expedite deportations, end birthright citizenship and restrict access to asylum, among other actions, for example. Many measures are being challenged in court.

The Trump administration is also readying a rule to end the lottery for H-1B visas — temporary work visas for college graduates in "specialty" fields like architecture, law and tech — and adopt a selection process that favors higher-wage earners.

Available data makes it hard to track what's happening to immigration flows and the immigrant labor pool in real time, economists said.

Some point to Bureau of Labor Statistics data as one signal.

The size of the foreign-born labor force has declined by about 1.2 million people since January, to 32.1 million total people in July, BLS data shows. (Some government data distinguishes between "foreign-born" and "native-born" workers — or, immigrants versus those born in the U.S.)

Nancy Vanden Houten, lead economist at Oxford Economics, cited the data in an Aug. 1 research note.

"[S]igns are mounting that the foreign-born labor force is shrinking due to the Trump administration's immigration policies," she wrote.

The U.S. labor force includes all people age 16 and older who are actively working or looking for work.

The BLS' reported decline in the foreign-born labor force has been "very dramatic" and larger than expected, said Stephen Brown, deputy chief North America economist at Capital Economics.

In July, the labor force participation rate had declined 0.3 percentage point for native-born workers compared with a year earlier, but had fallen by a much larger 1.2 percentage points for foreign-born workers, according to a J.P. Morgan analysis.

"[M]any immigrants appear to be leaving the labor force, wrote David Kelly, chief global strategist at J.P. Morgan Asset Management.

White House spokesperson Abigail Jackson said in an emailed statement that the Trump administration is committed to helping U.S. employers "ensure they have the legal workforce they need to be successful."

"There is no shortage of American minds and hands to grow our labor force, and President Trump's agenda to create jobs for American workers represents this Administration's commitment to capitalizing on that untapped potential while delivering on our mandate to enforce our immigration laws," Jackson wrote.

'Significantly weaker' job growth

Some economists say the BLS data on the foreign-born and native-born labor force segments isn't a reliable gauge of near-term trends, due to various quirks in how it's collected and reported.

Trump questioned the accuracy of BLS statistics and fired the bureau's chief in August after a monthly report showed unexpectedly weak job growth.

But there's other evidence that economists point to that also suggests the immigrant labor pool is shrinking.

For example, job growth among industries that rely more heavily on undocumented immigrants has been "significantly weaker" than in the rest of the private sector, said Jed Kolko, a senior fellow at the Peterson Institute for International Economics and former undersecretary for economic affairs at the U.S. Department of Commerce during the Biden administration.

Job growth in those industries — such as hotels, restaurants, construction and home health aides — has been flat since the start of 2025, said Kolko. In July, jobs grew at a 0% rate in immigrant-heavy industries, he found.

Meanwhile, job growth has slowed in the rest of the private sector — a roughly 0.6% pace in July — but the deceleration wasn't as stark, he said.

Kolko analyzed federal data to calculate the three-month average annualized rate of employment growth in respective industries.

[S]igns are mounting that the foreign-born labor force is shrinking due to the Trump administration's immigration policies.

Matthew Martin, senior U.S. economist at Oxford Economics, found an additional link between immigration policy and its impact on the labor force.

Labor force growth has been "stagnant" in states like Texas and Florida with high immigrant arrests per capita, he wrote in an Aug. 4 research note, citing Immigration and Customs Enforcement data.

"States such as Texas and Florida have seen more intense crackdowns than California, New York, and New Jersey," Martin wrote. The "low-arrest" states have seen positive labor force growth in 2025, by contrast, he wrote.

"The data show that while the foreign-born labor force in low arrest-to-population states has increased since the beginning of the year, the labor force in high-arrest states flatlined," he wrote.

Labor force growth is 'a great deal slower'

Nationwide, immigrant arrests have more than tripled since 2024, to more than 1,100 per day through mid-June, wrote Martin, citing ICE data.

Last month, Jerome Powell, chair of the Federal Reserve, cited immigration policy as a factor behind the slowdown in the labor supply.

"[B]ecause of immigration policy really, the flow into our labor forces is just a great deal slower," Powell said during a news conference on July 30.

The total U.S. labor force — including immigrants and native-born workers — has fallen for three consecutive months, according to BLS data. It has declined by 402,000 people from January to July, to about 170.3 million, the BLS reported.

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Arrests and deportations, fear of showing up to the workplace, and fewer flows of immigrants into the U.S. may be playing a role, economists said.

Two programs that have given roughly 1.8 million immigrants from troubled countries the temporary right to live and work in the U.S. are being phased out this year, wrote Kelly of J.P. Morgan. This change in status may reduce labor supply by more than 1 million workers, he wrote, citing J.P. Morgan research.

Of course, a decline in the labor supply isn't only a function of immigration.

For example, unemployed people discouraged by the difficulty of finding a job right now may opt to sit on the sidelines instead of looking for work, meaning they wouldn't be counted in the labor force, said Brown of Capital Economics.

The White House has also taken steps that it says will boost employment among immigrants who are in the U.S. legally.

The Department of Labor established the Office of Immigration Policy in June, which the administration has said will streamline the process to secure temporary and permanent work visas, for example. Trump also signed an executive order in April seeking to support high-paid, skilled trade jobs.

Why a shrinking labor force is a concern

Growth in the labor force is one of the "key" things determining how fast the U.S. economy can expand and how productive companies are, for example, Vanden Houten of Oxford Economics said in an interview.

A sustained decline in the size of the labor force — which is far from being assured — would be a concern, said Michael Strain, director of economic policy studies at the American Enterprise Institute, a right-leaning think tank.

"If we want the type of economic growth that we historically consider successful, then the demographic reality is that we're going to have to increase inflows of immigrants," Strain said. "There's no real way around that."

Without immigration, the population would shrink starting in 2033, partly because fertility rates are projected to remain low, according to the nonpartisan Congressional Budget Office.

[B]ecause of immigration policy really, the flow into our labor forces is just a great deal slower.

Additionally, a smaller labor pool might put pressure on employers to raise wages to attract talent, potentially exacerbating inflation, and would bring in less tax revenue to fund programs like Social Security, economists said.

The construction industry, which already suffers from labor shortages, is at risk of wage inflation, for example, according to a Bank of America Institute report published Tuesday.

Average wage growth in July approached 8% in the construction industry, nearly double the national average, according to the report.

"Immigration actions could potentially deepen workforce shortages, drive up costs and create serious financial risks for contractors," the Bank of America report said.

About 34% of construction workers are immigrants, versus the 20% average across all sectors, the report said. In trades like drywall installers or plasterers, the share is closer to 60%, it said.

A shortage of skilled labor already costs the U.S. economy about $10.8 billion per year due to longer construction times and raises the price of new single-family homes by about $2,600, on average, according to a joint analysis published in June by the Home Builders Institute, the National Association of Home Builders and the University of Denver.

However, some economists are skeptical that the U.S. will suffer a prolonged reduction in the immigrant labor force.

The Trump administration's plan likely isn't to have "net-out migration," Strain said.

"We didn't see net-out migration in [Trump's] first term," Strain said. "That'd cause all sorts of problems for businesses, for key sectors of the economy the president cares about, like construction, and I'd be surprised if that's where we end up."

"But who knows?" he added.

Source: CNBC

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Adam

Economic

Nvidia's (NVDA) upcoming earnings day may boil down to one key question: Will China be part of its outlook?

"If NVDA were to include China in its guidance, we believe it would contribute an incremental $2-3 billion in revenue," KeyBanc Capital Markets analyst John Vinh wrote in a new note.

Vinh expects strong Q2 results, driven by demand for Nvidia's Blackwell GPUs, when the chipmaker reports on Wednesday. But he warned that guidance for Q3 could be conservative, given uncertainty around US export licenses to China.

Still, KeyBanc reiterated its Overweight rating and lifted its price target to $215 from $190, pointing to Nvidia's central role in the AI boom and supply-demand dynamics that remain firmly in its favor.

Nvidia's near-term growth story looks solid without China. Supply of Nvidia's Blackwell B200 GPU jumped 40% in Q2 and could rise another 20% in Q3, according to Vinh. Simultaneously, shipments of the more advanced Blackwell Ultra (B300) are ramping up, reinforcing Nvidia's dominance in AI chips.

KeyBanc raised its full-year shipment forecast for Nvidia's rack-sale AI systems, known as GB200. The firm now expects 30,000 units to ship this year, up from 25,000 previously, citing stronger yields and improved supply-chain execution.

For now, KeyBanc assumes Nvidia will exclude China revenue from its guidance. That mirrors the approach of Advanced Micro Devices (AMD), which earlier this month left China out of its outlook amid the same regulatory uncertainty.

The Chinese impact on Nvidia is significant. KeyBanc raised its Q2 revenue estimate to $47.1 billion from $45.1 billion, above Wall Street’s consensus of $45.7 billion. It raised earnings per share to $1.05 from $0.99, slightly above consensus of $1.00.

But with Nvidia agreeing to pay 15% of Chinese chip sales to the US government, plus China's push for domestic AI chips, the company is likely to adopt a more conservative stance on its financial forecast.

For Q3, KeyBanc cut its revenue estimates to $50.4 billion from $53.5 billion, versus a consensus of $52.6 billion. EPS was clipped to $1.14 from $1.22, below the Street's consensus of $1.19. Longer term, KeyBanc trimmed fiscal 2026 forecasts on China risks, but boosted 2027 expectations on stronger rack shipments due to accelerating spending by hyperscalers like Amazon (AMZN), Microsoft (MSFT), and Google (GOOG).

Wall Street remains bullish. Morgan Stanley recently called Nvidia the most undervalued megacap stock in the market. Its shares are up more than 30% year to date and over 35% in the past 12 months.

Source: finance.yahoo

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Warren Takunda

Economic

China has been expanding use of digital currencies as it promotes wider use of its yuan, or renminbi, to reflect its status as the world's second-largest economy and challenge the overwhelming sway of the US dollar in international trade and finance.

However, restrictions on access to Chinese financial markets and limits on convertibility of the yuan, or “people’s money,” are big obstacles blocking its global use.

Still, Hong Kong already has stablecoin regulations and some Chinese experts are pushing for regulations to prepare for a possible stablecoin pegged to the yuan.

Officials at the People's Bank of China and State Council Information Office in Beijing did not immediately respond to requests for comment on a Reuters report that the State Council, or Cabinet, is preparing to issue a plan for internationalising the yuan that might include a yuan stablecoin.

How stablecoins work

Stablecoins are digital currencies whose value is linked to a specific currency such as the US dollar. They can be used as a substitute in situations where currency transactions might be difficult or costly.

They are different from cryptocurrencies like Bitcoin in that their only purpose is to be a means of payment, not an investment meant to be traded to gain value.

Dollar stablecoins are typically bought and sold for $1 (€0.87) each. They are based on a reserve equal to their value, but are issued by private institutions, not central banks like the European Central Bank (ECB) or the US Federal Reserve.

Stablecoins are not Digital Central Bank Currencies, which are digital versions of currencies issued by central banks. They are based on blockchain-based distributed ledgers. They are “stable” in the sense that their value is anchored to the currency they are based on.

Critics of stablecoins say that since they are essentially a proxy for ordinary currencies that can bypass banking systems and safeguards set up to manage traditional financial transactions, they may be most useful for illegal purposes.

China inches toward using digital currencies

China launched its own digital yuan, the e-CNY issued by its central bank, on a trial basis in 2019, and McDonalds was an early participant in that project.

Chinese regulators have banned mining, trading and other dealings in private, decentralised digital currencies like Bitcoin, while encouraging use of the digital yuan.

The nearly universal use of electronic payments has facilitated use of the e-CNY in the Chinese mainland, with some cities using it to pay wages of civil servants.

State media reported that as of July 2024, there were 7.3 trillion yuan worth of transactions using the currency in areas where it is being used on a trial basis.

China has also been promoting use of e-CNY in Africa, as it expands business dealings on the continent.

But e-CNY are not stablecoins. Experts say regulations are needed to safely manage use of stablecoins and to ensure they could be used smoothly with bank accounts and payment systems.

Hong Kong's role in digital currencies

Hong Kong, a former British colony that has its own financial markets, currency and partly autonomous legal system, enacted a stablecoin law that took effect on Aug. 1.

Aimed at attracting wealthy investors who want to use digital currencies and other financial products, it requires that a stablecoin linked to the Hong Kong dollar must be equal to the Hong Kong dollar reserves for that digital currency.

As a global duty-free port and financial hub, Hong Kong has often served as a base for trying out paths toward liberalising Chinese financial markets.

But new regulations specifically governing yuan stablecoin would be needed if such a digital currency were issued for use in Hong Kong, Liu Xiaochun, deputy director of the Shanghai Institute of New Finance, recently wrote in a report on the Chinese financial website Yicai.com.

China's limits on cross-border dealings

China's currency is not freely convertible in world financial markets and its stringent controls on foreign exchange are the biggest hindrance toward making the yuan a global currency, experts say.

According to the Society for Worldwide Interbank Financial Telecommunication (SWIFT), as of June, the yuan was the sixth most active currency for global payments by value, with a share of 2.88 per cent. Its use peaked in July 2024 at about 4.7 per cent.

It's used more often in trade financing, where it accounts for nearly 6 per cent of such dealings, according to that report.

The lion’s share of yuan transactions take place in Hong Kong.

The US dollar's share as a global payment currency was over 47 per cent as of June, followed by the euro, the British pound, the Canadian dollar, and the Japanese yen, the report said.