China Considers Yuan-Backed Stablecoins to Counter U.S. Dollar Dominance

 

State Council to Review Stablecoin Strategy

China is weighing the introduction of yuan-backed stablecoins as part of a broader strategy to boost the international role of its currency. According to a Reuters report, the proposal will soon be reviewed by the State Council, the nation’s highest policymaking body. If approved, this initiative would signal a dramatic departure from Beijing’s restrictive approach to digital assets, which has been in place since the ban on crypto trading and mining in 2021.

The roadmap is expected to outline clear objectives for increasing yuan adoption in cross-border finance, as well as regulatory and risk management frameworks. Hong Kong and Shanghai are likely to play a central role in piloting the first phase of implementation, helping China test market demand and regulatory models before a potential wider rollout.

Stablecoins as a Tool for Global Finance

Stablecoins, digital tokens pegged to fiat currencies, have become a critical part of the global financial system, with dollar-backed variants dominating international settlements and trading. Currently, the yuan represents only 2.88% of global payments, its lowest level in two years. By introducing yuan-linked stablecoins, Beijing hopes to challenge the dominance of the dollar and position its currency as a stronger player in the digital era of global finance.

However, China’s strict capital controls remain a significant barrier. While limited offshore access exists through connect programs, widespread adoption of a yuan-backed stablecoin would require greater flexibility in cross-border financial flows.

Further details on the proposal are expected in the coming weeks. Should the plan receive State Council approval, the People’s Bank of China will oversee development and execution, shaping a new phase in China’s financial innovation.

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