China’s Stablecoin Gambit: Challenging Dollar Dominance, One Yuan at a Time

China is considering the use of stablecoins to facilitate international payments, a move that could reshape global financial dynamics and challenge the dominance of the U.S. dollar in cross-border transactions. According to recent reports, Chinese authorities are actively exploring the feasibility of introducing a yuan-pegged stablecoin to support cross-border trade settlements. This initiative is part of a broader effort to promote the international use of the Chinese currency and to enhance the efficiency of financial transactions within the country’s state-backed enterprises. PetroChina, one of the nation’s largest state-owned energy companies, has confirmed it is studying the potential of stablecoins for international transactions. The company’s chief financial officer highlighted that it is monitoring Hong Kong’s emerging stablecoin licensing framework to evaluate its application in cross-border settlements [4].

China’s interest in stablecoins is gaining momentum as several pilot projects have demonstrated their viability in reducing exchange rate losses and improving transaction efficiency. For example, in Shenzhen, a stablecoin-based exchange system developed by Xiongdi Technology has enabled on-chain swaps between the Hong Kong dollar and China’s digital yuan, processing over 100,000 transactions daily. These early successes have spurred discussions among policymakers and industry experts about the broader implications of stablecoin adoption, particularly in cross-border trade and financial settlements [4].

Hong Kong, as a key financial hub, has taken a proactive role in shaping the regulatory landscape for stablecoins. The Hong Kong Monetary Authority (HKMA) has enacted the Stablecoins Ordinance (SO), making the region one of the first globally to implement a comprehensive regulatory framework for stablecoin issuers. The new regime, effective from August 2025, requires all fiat-referenced stablecoin issuers to obtain a license from the HKMA, ensuring compliance with anti-money laundering (AML), governance, and risk management standards. The SO also grants the regulator investigatory and enforcement powers, reinforcing the oversight of stablecoin operations [3].

The development of yuan-pegged stablecoins in China is also part of a larger geopolitical and economic strategy to reduce reliance on the U.S. dollar. While the U.S. has embraced stablecoins backed by the dollar to bolster its financial influence, China is seeking to counter this by promoting its own digital financial instruments. This includes the ongoing development of the digital yuan, which, although it has not gained significant traction so far, is being positioned as a complementary asset to stablecoins. In May 2025, the Hong Kong government adopted the Stablecoins Bill, which allows the issuance of stablecoins backed by Chinese assets, further indicating the region’s alignment with national financial strategies [1].

The potential introduction of a yuan-backed stablecoin raises concerns among Chinese policymakers. Former People’s Bank of China (PBOC) Governor Zhou Xiaochuan has warned that stablecoins could pose risks to financial stability, potentially creating new vulnerabilities rather than strengthening the country’s economic system [4]. Despite these concerns, Chinese state enterprises like PetroChina continue to explore the use of stablecoins for international trade settlements, signaling a growing acceptance of the technology in high-stakes financial operations.

Meanwhile, other Asian countries are also advancing their stablecoin strategies. Japan, for instance, is preparing to launch a yen-pegged stablecoin, with Monex Group planning to issue the coins backed by Japanese government securities. The project is expected to launch in the fall of 2025 and aims to support cross-border remittances and corporate trade. In the European Union, efforts to launch a digital euro on public blockchains like Ethereum and Solana have sparked debate over the balance between financial innovation and privacy concerns [1].

As global financial actors increasingly adopt stablecoins, the regulatory and technological landscape is evolving rapidly. The U.S. GENIUS Act, enacted in July 2025, has provided a clearer framework for dollar-backed stablecoins, encouraging their use in cross-border transactions and promoting financial inclusion in regions with limited access to traditional banking. However, the growing adoption of stablecoins also raises questions about financial sovereignty, data privacy, and the long-term implications of digital currencies on global financial systems [5].

Source:

[1] China, Japan, and other countries to challenge USD- (https://crypto.news/china-japan-and-other-countries-to-challenge-usd/)

[2] China's Oil Majors Plot Shift to New Fuels and Fine Chemicals (https://finance.yahoo.com/news/china-oil-majors-plot-shift-004858489.html)

[3] Hong Kong launches new stablecoin regime (https://www.linklaters.com/en/insights/blogs/fintechlinks/2025/august/hong-kong-launches-new-stablecoin-regime)

[4] China's NPC Explores Stablecoins For Cross-Border ... (https://coingape.com/chinas-npc-explores-stablecoins-for-cross-border-payment-as-rlusd-taps-singapore-market/)

[5] Asia's digital asset regulation at a crossroads (https://eastasiaforum.org/2025/08/26/asias-digital-asset-regulation-at-a-crossroads/)