China has long sought to elevate the yuan to the same level as the dollar and euro in global finance. Now the government is exploring a new digital path. According to Reuters, “China is considering allowing the usage of yuan-backed stablecoins for the first time to boost wider adoption of its currency globally.” This would mark a dramatic reversal from Beijing’s earlier hostility toward digital assets, when it banned cryptocurrency trading and mining in 2021.
The State Council, China’s cabinet, is expected to review a roadmap for internationalizing the yuan later this month. That plan, sources said, will “include targets for usage of the Chinese currency in the global markets and outline the responsibilities of domestic regulators.” Hong Kong and Shanghai are being positioned as the main testing grounds for these efforts, with the People’s Bank of China tasked to oversee implementation.
New legislation and testing grounds
The timing of this push is no accident. In July, U.S. President Donald Trump signed the GENIUS Act into law, the first federal regulation for stablecoins backed by the dollar. The law requires issuers to meet strict reserve standards, giving investors confidence that these tokens truly maintain their one-to-one value. Analysts at Goldman Sachs even described the past few months as the “summer of stablecoins,” signaling that a major turning point in digital finance has arrived.
Not wanting to be left behind, Hong Kong introduced its own ordinance on August 1, requiring stablecoin issuers to be licensed. Reportedly, more than forty companies have already applied for licenses. As one advisor to the People’s Bank of China, Huang Yiping, explained in an interview, “an offshore yuan stablecoin in Hong Kong is a possibility.”
Hong Kong is uniquely suited for this role because it has long been a bridge for China’s financial experiments. The city pioneered offshore “dim sum bonds” denominated in yuan, and today it still hosts the world’s largest liquidity pool for offshore yuan deposits, also known as CNH.
Why China is worried about the dollar
China’s push for a yuan-based stablecoin is not only about innovation. It is a response to the overwhelming dominance of dollar-backed tokens. According to the Bank for International Settlements, “stablecoins backed by the U.S. dollar currently dominate the market, accounting for over 99 percent of the global stablecoin supply.”
In contrast, the yuan’s global payment share has been slipping. The international platform SWIFT reported that the yuan’s share fell to just 2.88 percent in June, its lowest level in two years. The dollar by comparison commanded 47.19 percent. Analysts at the South China Morning Post wrote that “the rise of the digital asset underscores a long-standing dilemma. Despite turning Hong Kong into a testing ground, Beijing continues to restrict the unconventional digital asset, wary of the risks associated with crypto.”
Chinese officials openly acknowledge the challenge. Zhang Monan, a senior economist at the China Center for International Economic Exchanges, warned that the GENIUS Act will “reinforce dollar dominance.” She added that Hong Kong’s new rules may provide an opening for a yuan-pegged token to at least begin challenging that dominance.
Benefits Beijing hopes to claim
If successful, a yuan stablecoin could allow exporters and importers to settle trade without relying on dollars. It could also make cross-border remittances cheaper and faster for countries willing to align with Beijing’s currency strategy. Offshore yuan stablecoins might even support more purchases of so-called dim sum bonds and deepen regional liquidity pools.
E-commerce giants JD.com and Alibaba have already shown interest. JD.com reportedly took part in sandbox testing in Hong Kong during the consultation process. Analysts suggest that large companies issuing yuan stablecoins could blur the line between a central bank digital currency, like China’s existing e-CNY, and a privately issued token.
The credibility problem
The obstacles, however, are serious. The Economist observed that “China is unlikely to launch a mass-market stablecoin pegged to the yuan” due to “a limited supply of offshore assets and strict capital controls.” Offshore yuan deposits in Hong Kong total less than one trillion yuan, compared to 300 trillion yuan in mainland China. That makes the offshore market just 0.27 percent of the domestic supply.
Even more important is the issue of trust. Stablecoins rise and fall on whether investors believe the reserves truly back the coin. In the United States, new laws force issuers to prove they are holding dollar-denominated assets like treasuries. In China, the opposite reputation prevails. The government has a long record of intervening in currency markets. As one analyst told Cointelegraph, “a CNH-backed stablecoin is very likely. However, its scale, to the disappointment of some crypto bros, may not match larger global stablecoins.”
Joshua Chu of the Hong Kong Web3 Association put it even more bluntly: “China is unlikely to issue stablecoins onshore, but we can expect them offshore.” The reason, he explained, is that any onshore coin would clash with Beijing’s strict capital control rules.
Global numbers and projections
The stakes are high. The global stablecoin market currently stands at about $247 billion, according to CoinGecko, but banks like Standard Chartered believe it could reach $2 trillion by 2028. Other analysts go further, estimating a range of $1.6 trillion to $3.7 trillion within five years. Yet almost all of that projected growth is expected to be dollar-denominated, not yuan.
China’s own usage shows demand exists but in limited form. The International Monetary Fund reported that in 2024 Chinese users purchased $18.6 billion in stablecoins, mostly through the exchange Binance. This figure shows strong appetite for digital assets, but it also highlights why regulators fear capital flight if a yuan stablecoin were widely adopted.
Can China compete with the dollar?
For Beijing, the creation of a yuan-backed stablecoin is as much about symbolism as substance. It demonstrates to the world that China intends to compete in the next generation of finance. But the reality is that dollar-based stablecoins enjoy deep trust and liquidity, while the yuan remains shackled by capital controls and manipulated exchange rates.
As one Reuters report summed it up, China’s plan for stablecoins “would mark a major shift in its approach towards digital assets.” But analysts caution that this shift does not solve the fundamental problem. Everyone knows the yuan is not freely convertible. Everyone sees Beijing’s habit of favoring itself through manipulation. And without fixing those issues, a yuan stablecoin is unlikely to rival the dollar-backed tokens that already dominate the financial system.
FAM Editor: Read the article below for a prime example of why one should never trust China’s currency.
