China Eyes Yuan-Backed Stablecoins, A New Crypto Boom Ignited

China is exploring yuan-backed stablecoins as part of a push to boost the global presence of its currency, particularly against the US dollar. This move would mark a significant shift from the country's previous stance against crypto. Stablecoins are exploding worldwide due to their ability to facilitate instant cross-border transfers and government debt financing. China's entry into the stablecoin market would break the US dollar monopoly and expand the total addressable market for stable assets on-chain. This could ignite the next crypto boom, driving new demand across crypto infrastructure and chains like Ethereum and Solana.

China is reportedly considering the issuance of yuan-linked stablecoins as part of its broader strategy to expand the global usage of the yuan. This move represents a significant departure from China's previous stance on digital assets, which included a 2021 ban on cryptocurrency trading and mining. The potential adoption of yuan-backed stablecoins could mark a pivotal moment in the global financial landscape, challenging the dominance of the U.S. dollar in stablecoin markets.

The State Council, China's cabinet, is expected to review a policy roadmap later this month that could authorize the issuance and use of yuan-backed stablecoins. This plan is likely to set targets for global yuan adoption and assign responsibilities to regulators such as the People's Bank of China (PBOC). Senior leaders are also scheduled to meet before the end of August to discuss yuan internationalization and the role of stablecoins in facilitating cross-border trade [2].

The yuan currently holds a relatively small share of international payments, accounting for just 2.88% in June. In comparison, the U.S. dollar held a 47% share. The dominance of U.S. dollar-backed stablecoins in the global market, which currently stands at over $247 billion, underscores the potential impact of China's move. If adopted, yuan-backed stablecoins could break the U.S. dollar monopoly and expand the total addressable market for stable assets on-chain [2].

The potential entry of yuan-backed stablecoins into the market could drive new demand for crypto infrastructure and chains like Ethereum and Solana. These stablecoins have the ability to facilitate instant cross-border transfers and government debt financing, making them attractive to both institutional and retail investors. The expansion of the stablecoin market could also drive innovation in the broader crypto ecosystem, potentially leading to the next crypto boom [2].

The global stablecoin market is currently valued at over $286 billion, with Japan poised to launch its own yen-denominated stablecoin, JPYC, in October. This development aligns with broader efforts to modernize financial infrastructure and could provide Japan with a strategic foothold in the international digital finance landscape [1].

The approval of JPYC in Japan marks a significant advancement in the regulatory approach to digital assets. Japan's approach to stablecoins is considered a model for how jurisdictions can balance innovation with consumer protection and financial stability. This regulatory framework aims to ensure the stability and compliance of digital assets, with particular emphasis on transparency and risk management [1].

In conclusion, China's exploration of yuan-backed stablecoins represents a significant shift in its approach to digital assets and a potential game-changer in the global financial landscape. The approval of JPYC in Japan and the potential entry of yuan-backed stablecoins into the market could drive innovation and expansion in the crypto ecosystem, challenging the dominance of the U.S. dollar in stablecoin markets.

References:
[1] https://www.ainvest.com/news/japan-regulators-digital-yen-global-ambitions-2508/
[2] https://finance.yahoo.com/news/buckle-dollar-bulls-china-reportedly-134621451.html