China Considers Yuan Backed Stablecoins for National Financial Strategy

China is considering the integration of yuan-backed stablecoins into its national financial strategy, according to former Deputy Finance Minister Zhu Guangyao. This move is seen as a response to the growing influence of dollar-backed stablecoins in the global financial system. Zhu, speaking at a closed-door seminar hosted by the New Economists Think Tank, highlighted the potential of yuan-backed stablecoins to diversify settlement channels beyond traditional systems like SWIFT and CHIPS.

Zhu described dollar-pegged stablecoins as an extension of U.S. monetary strategy, suggesting they represent "the third phase of the Bretton Woods system." The original Bretton Woods structure, established in 1944, tied global currencies to the U.S. dollar, which was pegged to gold. After the gold-dollar link was severed in 1971, the U.S. maintained its dominance through dollar-priced oil trade. Today, Zhu argued, dollar-backed stablecoins serve as a new mechanism to sustain that position.

Zhu proposed three policy directions for China: treating Hong Kong as a regulatory sandbox under the new stablecoin ordinance, developing offshore and domestic CNY stablecoins, and monitoring how U.S. regulators enforce fiat-backed stablecoin rules, including constraints on foreign issuers. He emphasized that stablecoin development under Chinese monetary frameworks must become part of China’s national financial strategy.

Integrating yuan-backed stablecoins into global payments could provide a tool for incremental currency internationalization without the capital account liberalization associated with full convertibility. If designed to interoperate with foreign platforms while complying with international audit and reserve standards, Chinese stablecoins could serve as a means to diversify settlement channels, especially in regions where China has built trade or infrastructure ties.

Zhu also warned of the potential risks if China does not support yuan-backed stablecoins, stating that without regulatory support, China risks falling behind in digital finance infrastructure. He cited recent U.S. regulatory actions, including the passage of the Lummis–Gillibrand Payment Stablecoin Act, which requires all such stablecoins to be fully backed by liquid U.S. assets and issued by licensed entities. This law reinforces dollar liquidity and extends extraterritorial influence.

Zhu's proposal implies a gradual path to currency internationalization without loosening China’s capital controls. By developing yuan-backed stablecoins, China could potentially reduce its reliance on the U.S. dollar in cross-border transactions, which accounted for nearly half of all SWIFT transactions in May. This move could also support project financing, payment clearing, and supply chain settlements across Belt and Road corridors, requiring coordinated regulatory agreements and technical interoperability with partner nations’ financial systems.

The integration of yuan-backed stablecoins into China’s financial strategy raises new questions around data jurisdiction, monetary sovereignty, and real-time surveillance of capital flows. As national strategies evolve to balance sovereign control with international interoperability, the role of central banks in shaping private stablecoin infrastructure will be crucial. Some central banks may issue standards or licenses to oversee fiat-backed stablecoin operators, while others may collaborate through multilateral mechanisms to enforce reserve rules, interoperability, or cross-border settlement conditions.