China Eyes First Stablecoins to Challenge US Dollar Dominance in Global Trade

China is reportedly considering the launch of its first stablecoins, as part of a broader strategy to reduce reliance on the US Dollar in global trade and financial systems. According to a recent Financial Times report, the move reflects China’s growing interest in leveraging stablecoins to enhance the international role of the Renminbi (CNY) and challenge the dominance of US-backed stablecoins [1]. The initiative, however, faces significant challenges given the current market dynamics and regulatory environment.

Hong Kong is emerging as a potential testing ground for the project, following the introduction of the GENIUS Act, which establishes a legal framework for stablecoin issuance. The region has taken on a key role in China’s cryptocurrency strategy after the mainland banned most crypto activities. Under the new rules, only a limited number of licenses will be issued to businesses seeking to issue fiat-backed tokens, reflecting the cautious approach of Chinese regulators [2].

Despite these developments, the stablecoin ecosystem in China remains in its early stages compared to the US Dollar-backed market. Over 99% of the global stablecoin supply is currently pegged to the US Dollar, with Tether’s USDT dominating 61.22% of the market, according to DeFiLlama data. Chinese exporters are increasingly using USDT for international transactions to bypass local currency restrictions and capital controls, highlighting the practical advantages of US-backed stablecoins [1].

HKMA officials have expressed concerns over speculative behavior in the stablecoin market, emphasizing the need for a controlled and regulated rollout. The limited number of licenses expected to be issued in the coming year suggests that any large-scale deployment of CNY-backed stablecoins will take time. This regulatory restraint is part of a broader effort by Chinese authorities to balance innovation with financial stability [3].

The move aligns with China’s larger digital yuan strategy, which includes exploring the use of blockchain technology to modernize financial infrastructure. While the government has shown increasing openness to stablecoins, it continues to prioritize control over capital flows and monetary policy. The development of CNY-backed stablecoins adds a new dimension to the country’s approach to digital finance, but success will depend on regulatory clarity, international adoption, and technological readiness [2].

Chen Lin, Director of the Centre for Financial Innovation at the University of Hong Kong, acknowledged the challenges of competing with the US Dollar-backed stablecoin system. “It’s quite challenging to compete with the US dollar-backed stablecoin system, and certainly Hong Kong is making its own efforts, but there’s still a long way to go,” he told the Financial Times [1].

Sources:

[1] https://www.fxstreet.com/cryptocurrencies/news/china-mulls-launch-of-first-stablecoins-in-push-to-challenge-us-dollar-dominance-202508070654

[2] https://www.scmp.com/author/luna-sun

[3] https://www.techmeme.com/250805/p31