China Explores Yuan-Backed Stablecoin Amid Dollar Dominance
China is reportedly exploring a yuan-backed stablecoin for the first time, signaling a major pivot in its digital asset approach. Sources say the move aims to strengthen the yuan’s global influence as U.S. dollar-linked stablecoins dominate cross-border trade.
Summary
China is reportedly considering a yuan-backed stablecoin to challenge U.S. dollar dominance. The move aims to strengthen the yuan’s role in global trade amid rising use of dollar-pegged stablecoins. Hong Kong and Shanghai are expected to serve as testing grounds for the project.
On August 20, Reuters reported that China’s State Council is poised to review a roadmap for the yuan’s internationalization later this month, a plan that for the first time includes creating a sovereign stablecoin. People familiar with the matter say the move responds directly to the overwhelming dominance of U.S. dollar-linked stablecoins such as USDT and USDC, which now act as the backbone for much of global crypto trading and are creeping into traditional cross-border payments.
The report said the plan would see Hong Kong and Shanghai act as testing grounds for the project, with a high-level leadership study session on stablecoins scheduled to define the state’s approach.
Navigating a contradiction: Control vs. global ambition
China’s potential launch of a yuan-backed stablecoin represents a striking turnaround from its 2021 crackdown on cryptocurrency trading and mining. At that time, Beijing banned such activities over concerns about financial stability and speculative risks. Notably, the ban targeted decentralized, private assets seen as uncontrollable. A sovereign digital currency, however, is the ultimate expression of state control, merely utilizing blockchain’s efficiency for its own ends. This isn’t an embrace of crypto’s ethos but a co-opting of its technology for a precise geopolitical goal.
According to the report, the details of this ambitious plan are expected to be unveiled in the coming weeks, with the responsibility for its implementation falling squarely on the shoulders of domestic regulators, chief among them the People’s Bank of China.
Why the urgency?
The urgency of China’s move is underscored by the staggering dominance of the very thing it seeks to challenge. According to the Bank for International Settlements, U.S. dollar-pegged stablecoins account for over 99% of the global stablecoin supply. Crucially, Reuters noted a “growing use of dollar-backed stablecoins by Chinese exporters.” For Beijing, this is an alarming vulnerability. Every invoice settled in USDT or USDC reinforces the dollar’s orbit, creating a shadow financial system that operates outside its influence and directly undermines its yuan internationalization goals.
The upcoming Shanghai Cooperation Organization Summit in Tianjin, scheduled for the end of this month, is poised to be the first diplomatic testing ground for this new strategy. China is expected to discuss expanding the use of the yuan, and potentially its nascent stablecoin concept, with member nations, aligning with its broader ambition to create a multipolar world order less reliant on Western financial systems.