China may approve yuan-backed stablecoins amid fears of dollar-powered tokens

Key Takeaways

China is considering approving yuan-backed stablecoins to promote global use of its currency.
US dollar-backed stablecoins currently dominate the market, holding over 99% share.

China may soon permit yuan-backed stablecoins for the first time in a bid to accelerate the international adoption of its currency and compete with the US, Reuters reported Wednesday, citing sources with knowledge of the matter.

The State Council is set to review and may approve a roadmap later this month that would set adoption targets, assign regulatory responsibilities, and outline risk controls.

Senior leaders are expected to convene a study session on yuan internationalization and stablecoins, with official remarks expected to set boundaries for their use in business, the report noted.

Beijing also plans to raise the issue at the Shanghai Cooperation Organization summit in Tianjin later this month, aiming to expand yuan adoption and promote stablecoin settlement in cross-border trade.

US dollar stablecoins put pressure on China

China has blocked crypto activity since 2021, but Washington’s policy shift under Trump and growing international adoption may be pushing Beijing to reassess its stance.

The US is taking steps to institutionalize bank-issued, dollar-backed stablecoins under the GENIUS Act, ensuring a credible one-to-one peg backed by reserves and implicit Federal Reserve support. Standard Chartered forecasts that the US dollar-backed stablecoin market could top $2 trillion by 2028.

Treasury Secretary Scott Bessent has signaled that stablecoins may help solidify the dollar’s central role in global finance, while President Donald Trump has advocated for their use to strengthen the dollar’s reserve status and support demand for US Treasuries.

Beijing views this as a threat. According to a recent report from Foreign Policy, dollar stablecoins combine global liquidity with blockchain’s speed and programmability, while bypassing the capital controls that underpin the Chinese Communist Party’s financial power. Businesses could adopt them for lower costs, gradually displacing the yuan in trade and payments.

The yuan’s share in global payments fell to 2.88% in June, its lowest in two years, compared with nearly 47% for the US dollar, according to SWIFT.

Meanwhile, China’s existing digital currency effort, the e-CNY, has faced adoption challenges, being overshadowed by popular payment platforms Alipay and WeChat Pay.

Stablecoins, pegged to fiat currencies and powered by blockchain, are seen in Beijing as a tool to promote cross-border trade settlement and reduce reliance on the dollar.