China Probes Stablecoins to Curb Capital Flight Amid Digital Yuan Push

Chinese authorities are reportedly exploring the potential use of stablecoins to mitigate capital outflows, according to a Financial Times report citing unnamed sources. The investigation into stablecoin adoption is said to be occurring in parallel with China’s ongoing enforcement of a broad cryptocurrency ban and the development of its central bank digital currency (CBDC), the digital yuan [1]. These so-called "shadow tests" suggest a cautious but strategic interest in leveraging digital assets for macroeconomic stability.

The report outlines that Chinese regulators have consulted with experts to evaluate the trends and strategies surrounding stablecoins, with one unnamed source emphasizing that any stablecoin initiative must align with the country’s specific national conditions. The People’s Bank of China (PBOC) has historically been wary of digital currencies that could undermine monetary policy, particularly those that might exacerbate capital flight. This concern has only grown as Chinese banks moved approximately 133 trillion yuan (~$182 billion) into offshore accounts last year, signaling a significant challenge to the yuan's stability [1].

While China has long maintained strict controls over crypto activity—banning transactions as early as 2013 and pushing domestic mining operations abroad—it has simultaneously been among the world’s most active in CBDC development. Only a handful of smaller nations have launched live CBDCs ahead of China, positioning it as a global leader in this domain. The dual-track approach now appears to be expanding to include stablecoin research, which could complement the digital yuan by offering a controlled yet flexible mechanism for cross-border transactions [1].

In Hong Kong, a key financial hub under Chinese administration, regulatory interest in stablecoins has also been growing. On August 1, the Hong Kong Monetary Authority (HKMA) announced that entities issuing fiat-backed stablecoins must obtain a license and adhere to stringent requirements, including full reserve coverage and robust anti-money laundering (AML) and know-your-customer (KYC) protocols [1]. This move reflects a broader regional attempt to harness the benefits of stablecoins while maintaining regulatory oversight.

If these experiments yield positive results, a stablecoin backed by the yuan could coexist with the digital yuan, offering officials greater control over financial flows while catering to tech-savvy investors seeking seamless cross-border transactions. The implications extend beyond China’s borders. Global financial centers, including Washington, Brussels, and Delhi, are likely to monitor these developments closely, as a China-endorsed stablecoin could reshape international payment systems and influence geopolitical dynamics [1].

The exploration of stablecoins in China highlights a broader global trend in which regulators are increasingly viewing digital assets not just as speculative investments but as tools for managing capital flows and economic stability. If Beijing's tests prove successful, they may set a new benchmark for how major economies integrate stablecoins into their monetary strategies while balancing innovation with control.