In a potentially landmark policy reversal, China is considering the legalization of yuan-backed stablecoins as part of a new, concerted effort to expand the global use of its currency. This move, which would mark a significant departure from the country’s strict 2021 ban on cryptocurrency, signals a growing determination to counter the dominance of the US dollar in the digital finance arena.
Sources familiar with the matter told Reuters that China’s State Council, the country’s chief administrative body, is set to review a roadmap that includes the approval of privately issued, yuan-pegged digital tokens. If approved, the plan would assign roles to various domestic regulators and lay out risk-management guidelines, with initial pilots expected in financial hubs like Hong Kong and Shanghai.
Stablecoins are a type of cryptocurrency designed to maintain a stable value by being pegged to a real-world asset, typically a fiat currency. The market is currently overwhelmingly dominated by US dollar-backed tokens, such as Tether’s USDT and Circle’s USDC. The rise of these tokens in international payments, especially among Chinese exporters, has reportedly raised alarm bells in Beijing, which sees them as a tool that reinforces the dollar’s global position.
For years, China has been on a mission to internationalize the yuan, a goal that has been hindered by its tight capital controls. The country has heavily promoted its own central bank digital currency, the e-CNY, but its adoption has been largely domestic. The consideration of stablecoins suggests a new, pragmatic approach, acknowledging that private-sector innovation may be a more effective way to increase the yuan’s footprint in global digital transactions.
A yuan-backed stablecoin could facilitate faster and cheaper cross-border payments, potentially bypassing traditional systems like SWIFT, which some in Beijing view as susceptible to political weaponization. For countries and businesses trading with China, a regulated stablecoin could offer a more efficient payment rail, solidifying the yuan’s role in international trade.
However, the plan is not without significant challenges. Policymakers remain wary of the risks associated with private digital assets, including their potential for illicit finance and, crucially, for capital flight from a country with a tightly managed financial system. The proposed framework would therefore likely include strict controls to ensure that these new tokens do not undermine state control.
The move comes at a time of heightened competition in the global digital currency space. The United States has been making its own strides in establishing a regulatory framework for stablecoins, a push that has likely added to Beijing’s urgency to clarify its own position. Hong Kong, a special administrative region of China, has already established its own licensing regime for fiat-backed stablecoins, acting as a potential testing ground for mainland policy.
While the yuan’s share of global payments remains a fraction of the US dollar’s, this potential policy shift shows that China is determined to compete on new ground. By embracing a carefully controlled version of a technology it once outlawed, Beijing is signalling that it sees stablecoins not just as a financial tool, but as a strategic instrument in a broader economic and geopolitical rivalry.
