China eyes yuan-backed stablecoins in bid to challenge US dollar dominance

China is taking its first concrete steps toward developing stablecoins linked to the yuan, aiming to counter the rising global dominance of US dollar-backed tokens like USDT and USDC.

While the country maintains its blanket ban on crypto trading and mining, officials are now eyeing stablecoins as a strategic tool to promote the international use of the renminbi and tighten control over cross-border capital flows.

The move also signals a cautious pivot in Beijing’s digital currency policy, with regulators now working closely with financial institutions and experts to frame new guardrails for this tightly controlled digital shift.

China explores stablecoins tied to renminbi

After years of opposing digital assets, China’s stance on crypto appears to be shifting—but only in specific areas. The People’s Bank of China (PBOC) has started discussing the controlled launch of stablecoins pegged to the Chinese yuan (RMB).

These discussions follow growing concerns in Beijing over the impact of US dollar-backed stablecoins on global payment systems and China’s financial sovereignty.

While crypto exchanges, mining, and public investment in digital currencies remain banned on the mainland, Chinese regulators have acknowledged the influence of stablecoins on international settlements and capital movement.

Their objective is to ensure that if stablecoins are introduced in any form, they operate strictly within China’s financial system and adhere to the country’s legal frameworks.

Hong Kong becomes regulatory sandbox for stablecoin rollout

China is using Hong Kong as a controlled testing zone to experiment with stablecoin policies. A new law passed in the territory permits licenced firms to issue fiat-backed stablecoins, marking a significant departure from the mainland’s otherwise strict crypto restrictions.

However, authorities are moving cautiously. Only a select number of licences will be issued initially, with a focus on institutional and enterprise use cases.

This limited rollout aims to collect data, manage risks, and allow regulators to monitor how these digital tokens function in a tightly regulated environment before any broader implementation is considered.

Strategy to curb capital flight and boost RMB’s role in trade

One of Beijing’s central concerns is the outflow of capital using US dollar stablecoins. Tokens like Tether (USDT) and USD Coin (USDC) are widely used in cross-border transactions, and Chinese officials see this as a threat to domestic financial stability.

To counteract the influence of dollar-pegged assets, regulators are now focusing on developing RMB-backed stablecoins that can offer similar utility while reinforcing China’s capital controls.

This approach would help reduce dependence on foreign currencies for international trade and strengthen the RMB’s role in the global economy.

Controlled innovation amid crypto restrictions

While China’s renewed interest in stablecoins is notable, it does not signal a broader legalisation of cryptocurrencies. Trading in assets like Bitcoin and Ethereum remains illegal across the mainland.

The country’s digital currency ambitions remain tightly linked to state control, and any future stablecoin infrastructure will likely reflect that.

PBOC officials have raised concerns about the uncontrollable nature of decentralised assets. Even centrally issued stablecoins, they warn, could be difficult to track once released, which clashes with China’s preference for rigid oversight over money flows.

Still, Beijing’s evolving position marks a new chapter in its digital currency narrative—one that is less about resistance and more about strategic adaptation.

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