China Seeks to Challenge Dollar Dominance with Yuan-Backed Stablecoin Push

China is considering a significant shift in its long-standing stance on digital assets by exploring the use of yuan-backed stablecoins to enhance the global adoption of its currency, according to sources familiar with the matter. The State Council, China's top administrative body, is expected to review a policy roadmap later this month that may authorize the issuance and use of stablecoins pegged to the Chinese yuan. If approved, this move would represent a departure from the country’s 2021 ban on cryptocurrency trading and mining, which was imposed to maintain financial stability [1]. The plan is anticipated to include targets for the yuan's global usage, regulatory responsibilities, and risk prevention measures [1].

The potential introduction of yuan-backed stablecoins aligns with China's broader goal of internationalizing the yuan. Currently, the yuan's share in global payments is 2.88%, according to SWIFT data from June 2025—its lowest in two years. Meanwhile, the U.S. dollar dominates with a 47.19% share. Stablecoins, which are typically pegged to major fiat currencies like the dollar, have gained traction in global financial flows and are seen as tools to facilitate low-cost, instant cross-border transactions [1]. With U.S.-backed stablecoins accounting for over 99% of the global stablecoin supply, China aims to counter their influence and advance its own digital currency ambitions [2].

Hong Kong and Shanghai are expected to lead the implementation of the proposed stablecoin framework. Hong Kong enacted a stablecoin ordinance on August 1, positioning the city as one of the first jurisdictions globally to regulate fiat-backed stablecoins. Meanwhile, Shanghai is developing an international operation center for the digital yuan (e-CNY), signaling the region's growing role in China's digital financial strategy. The plan also includes discussions on expanding yuan usage in cross-border trade and payments during the upcoming Shanghai Cooperation Organization (SCO) Summit in Tianjin [1]. The e-CNY, which is currently in a pilot phase, may serve as a bridge for yuan-linked capital flows, potentially linking with global digital assets such as USDT and USDC [5].

China’s interest in stablecoins is also driven by the need to address capital controls, which have historically limited the yuan’s global reach. Despite tight restrictions on capital outflows, the government has permitted certain connect schemes, such as those in Hong Kong, to allow limited offshore investment. A yuan-backed stablecoin, if issued under a controlled framework, could provide a way to facilitate international transactions without undermining capital controls [1]. However, the implementation of such a system would require careful regulation to prevent risks like money laundering and speculative trading [3]. Morgan Stanley has suggested that Hong Kong dollar stablecoins could act as intermediaries between the e-CNY and global digital assets, enabling cross-border investment and supporting yuan internationalization [5].

The growing adoption of stablecoins in Asia is not exclusive to China. South Korea has pledged to allow won-backed stablecoins, while Japan is developing its own regulatory framework. The People’s Bank of China (PBOC) has also acknowledged the transformative potential of stablecoins in global payment systems. This shift is occurring against a backdrop of increasing geopolitical tensions and the rapid expansion of U.S. dollar-backed stablecoins. As global financial systems evolve, the use of digital assets is expected to play a larger role in shaping the future of cross-border commerce and monetary policy [2].

Source:

[1] China considering yuan-backed stablecoins to boost ... (https://www.reuters.com/business/finance/china-considering-yuan-backed-stablecoins-boost-global-currency-usage-sources-2025-08-20/)

[2] China weighs yuan-backed stablecoins in major policy shift (https://cointelegraph.com/news/china-considering-yuan-backed-stablecoins-global-currency-usage)

[3] Buckle Up Dollar Bulls, China Is Reportedly Considering Its ... (https://finance.yahoo.com/news/buckle-dollar-bulls-china-reportedly-134621451.html)

[4] China Is Worried About Dollar-Backed Stablecoins (https://foreignpolicy.com/2025/08/19/china-stablecoins-crypto-dollar-genius-act/)

[5] Stablecoin law holds promise for e-CNY, cross-border flows (https://www.scmp.com/business/banking-finance/article/3322322/hong-kongs-stablecoin-law-holds-promise-e-cny-cross-border-flows-morgan-stanley)