China's Quiet Gambit: Can Yuan Stablecoins Reshape Global Finance?

China has taken a significant step toward promoting yuan internationalization by considering the adoption of yuan-backed stablecoins, a move that could challenge the U.S. dollar's dominance in global cross-border transactions. According to reports, the State Council is reviewing a roadmap outlining targets for the use of yuan-based stablecoins, assigning responsibilities to domestic regulators, and implementing risk prevention measures. Senior officials are also expected to hold a study session to define the boundaries and development opportunities for stablecoins [1]. The People’s Bank of China (PBOC) is reportedly assigned the task of overseeing stablecoin implementation, while Hong Kong and Shanghai will be asked to fast-track local implementation [1].

The initiative marks a notable shift from China’s previous stance on digital assets, where in 2021, the country banned cryptocurrency trading and mining over concerns about financial stability. The new approach appears to be a response to the U.S. embrace of dollar-backed stablecoins, which are used to boost international demand for the dollar. Currently, the dollar accounts for over 47% of global transactions, compared to the yuan’s roughly 3% share [1]. Beijing aims to leverage stablecoins to enhance the yuan’s role in global finance, particularly among countries where China has established economic influence through its Belt and Road Initiative (BRI) [1].

Domestic tech firms such as JD.com and Alibaba’s Ant Group have been advocating for a relaxation of stablecoin restrictions to reduce cross-border transaction costs. Additionally, Chinese blockchain firm Conflux has reportedly been preparing an offshore yuan stablecoin, although recent reports have disappeared from state-run media [1]. However, the success of yuan-backed stablecoins will depend on global trust in the yuan, which is complicated by concerns over the transparency of China’s economic data. These concerns could be mitigated if the U.S. continues to face internal challenges, such as President Donald Trump’s efforts to undermine the Federal Reserve’s independence and credibility [1].

China’s former central bank governor, Zhou Xiaochuan, has voiced caution about the risks of adopting yuan-backed stablecoins. He emphasized that the demand for stablecoins may be overstated, particularly given the efficiency and low cost of China’s existing mobile payment systems, including QR codes and NFC-based transactions. He also highlighted the potential for a “multiplier effect” in stablecoin issuance, where excessive token creation could destabilize the financial system if not properly regulated [2]. His remarks reflect the cautious tone of Chinese regulators, who are weighing the potential benefits of stablecoins against systemic risks [2].

Despite these concerns, China is moving forward with its stablecoin roadmap, with Hong Kong and Shanghai identified as key hubs for implementation. Hong Kong’s stablecoin ordinance, which came into effect on August 1, positions the territory as a regulatory leader in the stablecoin space, with applications for licenses expected to be reviewed in early 2026 [1]. Shanghai is also establishing an international operation center for the digital yuan, underscoring the city’s role in advancing China’s digital currency strategy [1]. These developments suggest that China is preparing for a broader international rollout of yuan-backed stablecoins, potentially targeting countries aligned with its BRI.

The global stablecoin market, currently valued at about $247 billion, is expected to grow significantly in the coming years. Analysts estimate that the market could reach $2 trillion by 2028, driven by increasing adoption of U.S. dollar-backed stablecoins [1]. However, China’s push into this space could reshape the competitive landscape, particularly if it manages to overcome challenges related to trust, regulatory compliance, and capital controls. The success of yuan-backed stablecoins will also depend on the ability of Chinese regulators to maintain financial stability while promoting innovation [1].

Source:

[1] China eyes stablecoins to boost ‘yuan internationalization’ (https://coingeek.com/china-eyes-stablecoins-to-boost-yuan-internationalization/)

[2] China's Ex-Central Bank Chief Warns of Risks as Yuan ... (https://cryptodnes.bg/en/chinas-ex-central-bank-chief-warns-of-risks-as-yuan-stablecoin-gains-momentum/)