China Plans Yuan-Backed Stablecoins to Challenge Dollar Dominance

China is preparing to authorize yuan-pegged stablecoins to promote the international use of its currency, marking a potential shift in the global financial landscape. The initiative, which focuses on cross-border trade, involves leveraging blockchain technology and state-controlled digital infrastructure to facilitate yuan-backed stablecoin transactions. This move represents a departure from China’s strict 2021 cryptocurrency ban and signals a strategic effort to enhance the yuan’s global presence [1].

The plan, expected to be presented to the State Council by the end of August, aims to create an alternative to dollar-backed stablecoins and reduce reliance on the U.S. dollar in international commerce. Authorities have identified Hong Kong and Shanghai as key hubs for implementing the initiative, with pilot programs likely to follow. The strategy is also aligned with the Shanghai Cooperation Organization (SCO) Summit in Tianjin, which may serve as a platform to announce the policy roadmap [2].

A central goal of the initiative is to reduce dependence on dollar-based settlements and bolster the yuan’s role in global trade. By pegging stablecoins to the offshore renminbi (CNH) and the Hong Kong dollar, China seeks to create a parallel financial system that bypasses traditional gatekeepers like SWIFT. This could reshape cross-border commerce and challenge the dominance of the U.S. dollar in international payments [3].

Regulatory oversight is expected to be stringent, with the People’s Bank of China (PBOC) emphasizing compliance, including real-name verification and geofencing, to ensure state control over transactions. Hong Kong has already taken a step in this direction, with a new regulatory framework for stablecoins launched on August 1. The framework encourages blockchain-based digital finance under strict oversight, ensuring platforms meet anti-money laundering (AML), cybersecurity, and risk management requirements [4].

The potential economic impact of yuan-backed stablecoins could be significant, particularly for China’s regional partnerships, such as the Belt and Road Initiative (BRI) and the SCO. These stablecoins could facilitate faster, more transparent, and less costly cross-border transactions in sectors like logistics and energy. Integration with China’s existing digital yuan (e-CNY) infrastructure could further support broader adoption of its central bank digital currency [5].

Blockchain infrastructure and fintech firms are also poised to benefit. State-backed companies such as AntChain and TrustSQL are being positioned to develop the necessary technology, while traditional financial institutions and private fintech players are exploring opportunities to integrate yuan-backed stablecoins into their platforms. This could drive a new wave of innovation in China’s digital financial ecosystem [6].

Geopolitically, the initiative has the potential to reshape global monetary systems. With the stablecoin market projected to grow significantly, China’s push to establish a yuan-backed stablecoin could challenge the dominance of U.S. dollar-backed stablecoins and reduce the influence of Western financial institutions. However, challenges remain, including regulatory uncertainty and skepticism from international markets [7].

As the State Council reviews the plan, the timeline for implementation is accelerating. With Hong Kong’s stablecoin framework already in place and BRI nations showing interest in adopting yuan-backed stablecoins for energy and infrastructure projects, the potential market for these tokens is expanding. Investors and market participants are now closely watching how this policy evolves and the extent to which it may impact global financial systems [8].

Sources:

[1] China considering yuan-backed stablecoins to boost global currency usage, sources say (https://www.reuters.com/business/finance/china-considering-yuan-backed-stablecoins-boost-global-currency-usage-sources-2025-08-21/)

[2] Why China is expanding into digital currencies (https://www.euronews.com/next/2025/08/21/why-china-is-expanding-into-digital-currencies)

[3] China stablecoin shift: Beijing mulls yuan-backed tokens to push global adoption (https://timesofindia.indiatimes.com/business/international-business/china-stablecoin-shift-beijing-mulls-yuan-backed-tokens-to-push-global-adoption-plans-major-policy-reversal/articleshow/123430235.cms)

[4] China Considers Yuan-Backed Stablecoins to Challenge U.S. Dollar Dominance (https://coincentral.com/china-considers-yuan-backed-stablecoins-to-challenge-us-dollar-dominance/)

[5] China quietly prepares yuan stablecoins as 99% of supply is in dollars (https://cryptoslate.com/china-quietly-prepares-yuan-stablecoins-as-99-of-supply-minted-in-dollars/)

[6] China's could give green light on yuan-pegged stablecoins by end of August, Reuters reports (https://www.mitrade.com/insights/news/live-news/article-3-1055063-20250820)

[7] China is expanding into digital currencies, hoping to challenge U.S. dollar dominance (https://www.newsday.com/business/stablecoin-currency-china-yuan-dollar-trump-n93960)