China's Tech Giants Push Yuan-Backed Stablecoins to Challenge Dollar Dominance

China's tech giants, JD.com and Ant Group, are advocating for the development of Yuan-backed stablecoins to challenge the supremacy of the U.S. dollar in the global stablecoin market. This push comes as China seeks to counterbalance the growing dominance of U.S. dollar-pegged digital currencies, particularly in light of the recently passed GENIUS Act in the United States.

These proposed stablecoins would be pegged to the offshore Yuan, with the aim of increasing the global footprint of China’s currency. The move is seen as a strategic effort to enhance the efficiency of cross-border Yuan payments and to challenge the expanding digital influence of the U.S. dollar. However, the path to dominance is fraught with challenges, as Tether’s USDT and Circle’s USDC currently dominate a market where more than 99% of stablecoins are tied to the U.S. dollar.

Despite these challenges, the stablecoin market is poised for significant growth. Currently valued at $247 billion, it is projected to surge to $2 trillion by 2028, according to Standard Chartered. This growth is driven by the increasing adoption of stablecoins in various financial applications, including trading, decentralized finance (DeFi), and crypto treasury functions. However, the market faces regulatory uncertainties and the development of central bank digital currencies (CBDCs) by various countries.

Executives in the industry have weighed in on the importance of this push. Wang Yongli, Co-chairman of Digital China Information Service Group and former Vice Head of the Bank of China, highlighted the strategic risk if cross-border Yuan payments are not as efficient as dollar stablecoins. Xiao Feng, Chairman of crypto exchange operator HashKey, echoed similar sentiments, stating that China can no longer avoid taking action.

If China’s lobbying push succeeds, it would mark a notable policy shift since Beijing’s 2021 crypto ban and could hint at a broader strategy to boost the Yuan’s international relevance through digital finance. However, China’s aspiration to elevate the Yuan as a global reserve currency continues to face significant hurdles, particularly due to the country’s tight capital controls. Although China ranks as the world’s second-largest economy, the Yuan’s presence in global payment systems has diminished, falling to 2.89% in May, its weakest level in almost two years. In contrast, the U.S. dollar still maintains a commanding 48.46% share.

As dollar-backed stablecoins gain traction among Chinese exporters, many of whom now prefer USDT for cross-border settlements, tech giants like Ant Group and JD.com are accelerating efforts to issue their own stablecoins to reclaim monetary ground. JD.com plans to launch a Hong Kong dollar-pegged stablecoin by year-end, while Ant Group is actively pursuing licenses in Hong Kong, Singapore, and Luxembourg to broaden its blockchain-based payment infrastructure. These moves align with a broader push to counter the digital dollar’s growing dominance.

The competition between stablecoins and CBDCs is likely to intensify in the coming years, as both types of digital currencies vie for dominance in the global financial system. The outcome of this competition will depend on various factors, including regulatory developments, technological advancements, and the preferences of users and investors. As the stablecoin market continues to evolve, it will be important for stakeholders to stay informed about the latest developments and trends in this rapidly changing landscape.