China Eyes Yuan-Backed Stablecoin to Challenge Dollar Dominance

China is reportedly considering the development of a yuan-backed stablecoin for the first time, signaling a strategic shift in its digital asset and international finance strategy. The initiative aims to challenge the dominance of U.S. dollar-linked stablecoins such as USDT and USDC, which account for over 99% of the global stablecoin supply and are increasingly used in cross-border trade and crypto transactions. The move is part of a broader roadmap to internationalize the yuan, with plans expected to be reviewed by China’s State Council later this month [1].

This potential development represents a significant departure from China’s 2021 ban on cryptocurrency trading and mining, which was introduced to mitigate financial risks and stabilize the domestic economy. At that time, the government focused on curbing private, decentralized cryptocurrencies. Now, it appears to be leveraging blockchain technology—once considered a threat—to advance its geopolitical and financial objectives. A sovereign-backed stablecoin would allow Beijing to retain full control while benefiting from the efficiency of blockchain infrastructure [1].

Sources indicate that Shanghai and China Hong Kong will serve as the initial testing grounds for the yuan-backed stablecoin. The plan is expected to be formalized following a high-level leadership study session on stablecoins, which will outline the state’s strategy and regulatory framework. The People’s Bank of China is likely to play a central role in overseeing the project, emphasizing the government’s intent to maintain oversight and stability throughout the implementation process [1].

The urgency behind this initiative is driven by growing concerns over China’s reliance on U.S. dollar-backed stablecoins in international trade. A report highlights that Chinese exporters are increasingly settling invoices in USDT and USDC, reinforcing the dollar’s influence and creating a parallel financial system outside Beijing’s control. This trend is seen as a direct challenge to China’s long-term goal of elevating the yuan’s role in global commerce [1].

The upcoming Shanghai Cooperation Organization Summit in Tianjin is expected to be the first diplomatic test of this strategy. China is likely to push for greater adoption of the yuan and its potential stablecoin among member nations, aligning with broader efforts to reduce dependence on Western financial systems and promote a multipolar global economy [1].

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Source: [1] China mulls yuan-backed stablecoin to counter dollar dominance: report (https://crypto.news/china-mulls-yuan-backed-stablecoin-to-counter-dollar-dominance-report/)