China Deploys Stablecoins as Weapon in Digital Dollar War

China may soon approve the issuance of yuan-backed stablecoins to strengthen the global usage of its currency, as the nation seeks to counter the growing influence of dollar-backed stablecoins and expand its financial infrastructure. The development comes amid growing concerns over the potential risks posed by U.S. stablecoins, which are increasingly being regulated under frameworks like the GENIUS Act. This U.S. initiative enables regulated banks to issue dollar-backed stablecoins, creating a digital monetary system that bypasses traditional banking protocols and operates on decentralized blockchains. These tokens, which are fully backed by U.S. dollars or safe assets, offer near-perfect stability and could reach as much as $1.75 trillion in circulation by 2027. Chinese authorities view such developments with caution, as dollar stablecoins threaten to undermine state control over capital flows and weaken the country’s monetary sovereignty [1].

In response, China is exploring alternative digital monetary models, including the development of renminbi-backed stablecoins, particularly through its special administrative region, Hong Kong. The Hong Kong Monetary Authority has recently introduced the Stablecoins Ordinance, a regulatory framework allowing licensed entities to issue fiat-backed stablecoins. This law is expected to serve as a testing ground for Beijing’s broader ambitions in digital finance. The ordinance mandates strict compliance with know-your-customer (KYC) and anti-money laundering (AML) requirements, ensuring that stablecoin transactions remain traceable and subject to oversight. Standard Chartered, among other financial institutions, is already leveraging this opportunity to establish a presence in the Hong Kong stablecoin market, capitalizing on the region’s regulatory clarity and early mover advantage [2].

The potential of Hong Kong dollar-backed stablecoins to serve as a bridge between China’s digital yuan (e-CNY) and global digital assets has been highlighted by Morgan Stanley. According to the bank’s chief China equity strategist, Laura Wang, these stablecoins could facilitate cross-border transactions and support the internationalization of the yuan without violating mainland capital controls. Under this model, international investors could convert major stablecoins like USDT and USDC into Hong Kong dollar stablecoins and subsequently into e-CNY to invest in Hong Kong-listed assets or tokenized securities. This would create a channel for yuan-linked capital flows, aligning with Beijing’s strategic goals to reduce reliance on the U.S. dollar in global trade and finance [3].

While the digital yuan, or e-CNY, has been under pilot testing since 2020, its adoption has remained limited. Despite efforts by the People’s Bank of China to promote its use, the e-CNY has struggled to compete with established payment platforms like WeChat Pay and Alipay. A 2024 S&P Global Ratings report noted that widespread adoption of the e-CNY could negatively impact bank profitability, as it does not generate fees like traditional digital payment systems. Nevertheless, the central bank continues to view the e-CNY as a critical tool for maintaining monetary control and countering the risks associated with private stablecoins. The recent push toward stablecoin development in Hong Kong suggests that Beijing is seeking to enhance the e-CNY’s utility in offshore markets while maintaining strict regulatory oversight [1].

China’s approach to digital currency innovation is distinct from that of the United States, emphasizing centralized control over decentralized systems. Unlike U.S. initiatives that aim to create permissionless, pseudonymous digital currencies, China’s vision for stablecoins is rooted in state control and surveillance. Blockchain technology is being deployed within closed, government-approved systems that prioritize transparency and traceability, ensuring that every transaction can be monitored in real time. This model aligns with China’s broader strategy of using technology to reinforce state governance, embedding policy restrictions directly into the monetary system. Features such as transaction limits, expiration dates, and geographic restrictions could be integrated into stablecoins to align with national economic objectives and capital control policies [1].

With momentum growing among both public and private actors, China appears poised to launch a renminbi-backed stablecoin that could rival U.S. dollar stablecoins in global markets. Tech giants like JD.com and Ant Group, a subsidiary of Alibaba, are already planning to issue stablecoins in Hong Kong, signaling a shift in the country’s regulatory stance. Analysts and industry leaders, including former Bank of China officials, have publicly supported the development of such stablecoins as a means of reclaiming China’s influence in the digital asset space. As the global race for digital monetary dominance intensifies, China is likely to leverage its institutional advantages—scale, regulatory control, and technological capabilities—to shape the future of global finance [1].

Source:

[1] China Is Worried About Dollar-Backed Stablecoins (https://foreignpolicy.com/2025/08/19/china-stablecoins-crypto-dollar-genius-act/)

[2] Standard Charted has seized the stablecoin opportunity in ... (https://finance.yahoo.com/news/standard-charted-seized-stablecoin-opportunity-101920003.html)

[3] Stablecoin law holds promise for e-CNY, cross-border flows (https://www.scmp.com/business/banking-finance/article/3322322/hong-kongs-stablecoin-law-holds-promise-e-cny-cross-border-flows-morgan-stanley)