China's Stablecoin Gambit: A State-Controlled Challenge to Dollar Dominance

China is examining the potential of yuan-backed stablecoins to increase the international use of its currency, according to sources cited by Reuters. This development marks a significant shift in Beijing’s stance toward digital assets, particularly given its previous stringent regulations on cryptocurrency. The State Council, China’s top policy-making body, is reportedly set to review a plan to expand the yuan's role in the global financial system, potentially including the use of stablecoins [3]. The move is seen as a strategic response to the growing dominance of U.S. dollar-backed stablecoins, which are now central to cross-border transactions and digital finance.

The plan would involve the establishment of guidelines for yuan-backed stablecoins, as well as mechanisms for managing financial risks and preventing fraud. It also highlights China's long-term ambition to elevate the yuan to the status of a global reserve currency, a goal complicated by its strict capital controls and the dominance of the U.S. dollar in international trade [3]. The yuan's share of global payments fell to 2.88% in June 2025, according to SWIFT, compared to 47.19% for the U.S. dollar [3].

Hong Kong and Shanghai are expected to lead the implementation of the proposed plan, with both cities already exploring initiatives to integrate stablecoins into their financial systems. Hong Kong, in particular, has taken a regulatory step forward, with its stablecoin ordinance taking effect on August 1, 2025. This legislation positions Hong Kong as one of the first global markets to regulate fiat-backed stablecoin issuers [3]. Shanghai is also advancing its digital yuan efforts through the development of an international operations center.

However, the expansion of yuan-backed stablecoins faces challenges, particularly due to China's tight capital controls, which limit the free flow of funds. These controls, while effective in managing domestic financial stability, hinder the broader adoption of stablecoins in international markets. Despite these constraints, Chinese officials view stablecoins as a tool to bolster yuan internationalization, particularly in the context of cross-border trade and payments. This perspective is echoed by Huang Yiping, an advisor to China's central bank, who has suggested that an offshore yuan stablecoin in Hong Kong is a plausible scenario [3].

The growing global influence of U.S. dollar-backed stablecoins is reshaping the monetary landscape and prompting geopolitical responses from countries like China. The U.S. GENIUS Act, which provides a regulatory framework for stablecoin issuance, is expected to accelerate the growth of the stablecoin market. According to Standard Chartered Bank, the global stablecoin market could reach $2 trillion by 2028 [1]. This expansion poses a significant challenge to China, as dollar-backed stablecoins threaten to undermine the effectiveness of capital controls and reshape the global financial system.

In response, China is exploring a state-controlled model for stablecoins that would integrate blockchain technology while maintaining strict oversight. This approach aligns with Beijing’s broader strategy of leveraging technology to reinforce state authority rather than challenge it. Unlike the decentralized nature of many stablecoins, China’s vision involves a permissioned system where every transaction is traceable and linked to individual identities. This model supports the government’s goals of financial surveillance and policy implementation but also raises concerns about privacy and individual freedoms [4].

The introduction of stablecoins in China also reflects the country’s broader ambitions in the digital economy. While the digital renminbi (e-CNY) has struggled to gain traction in the consumer market, stablecoins are seen as a complementary tool for expanding the yuan’s reach. JD.com and Alibaba, two of China’s largest e-commerce companies, are exploring stablecoin initiatives in Hong Kong, where the regulatory environment is more permissive [5]. These efforts are part of a broader push to integrate stablecoins into various aspects of the financial ecosystem, including payments, savings, and remittances.

The global stablecoin market is expected to continue growing, driven by demand for faster, cheaper, and more accessible financial services. In the U.S., the GENIUS Act has opened the door for a wider range of financial institutions to issue stablecoins, fostering innovation and competition. Similarly, Japan has made regulatory strides in the stablecoin space, with Tokyo-based companies like JPYC preparing to launch the first yen-backed stablecoin later in 2025 [6]. These developments suggest that stablecoins will play an increasingly important role in the global financial system, with countries like China, the U.S., and Japan at the forefront of this transformation.

Source: [1] Stablecoins are set to reshape the multitrillion-dollar US ... (https://finance.yahoo.com/news/stablecoins-are-set-to-reshape-the-multitrillion-dollar-us-treasury-market-100041163.html) [2] Stablecoins are about to change your life — you just don't ... (https://thehill.com/opinion/technology/5467954-stablecoins-are-about-to-change-your-life-you-just-dont-know-it-yet/) [3] China considering yuan-backed stablecoins to boost ... (https://www.reuters.com/business/finance/china-considering-yuan-backed-stablecoins-boost-global-currency-usage-sources-2025-08-21/) [4] Why China Is Spooked by Dollar Stablecoins and How It ... (https://www.cfr.org/article/why-china-spooked-dollar-stablecoins-and-how-it-will-respond) [5] Everybody wants a stablecoin, even China (https://www.atlanticcouncil.org/blogs/econographics/everybody-wants-a-stablecoin-even-china/) [6] Japan's Stablecoin Laws Came First, but US Gains ... (https://cointelegraph.com/news/japan-wrotejapan-stablecoin-laws-vs-us-genius-act-adoption-gapthe-first-stablecoin-rulebook-so-why-is-the-us-pulling-ahead) [7] Japan startup to issue first yen-backed stablecoin (https://www3.nhk.or.jp/nhkworld/en/news/20250825_B5/) [8] Ripple and SBI to launch RLUSD stablecoin in Japan by ... (https://thedigitalbanker.com/ripple-and-sbi-to-launch-rlusd-stablecoin-in-japan-by-2026/)