China is reportedly considering allowing the private release of yuan-backed stablecoins for the first time. This is a landmark policy shift from the country’s current financial structure, which banned crypto trading in 2021.
This new push is part of a broader strategy that’s meant to help with the internationalisation of the yuan, as well as reduce the market domination of the US dollar.
A follow-up from a July meeting
This news hasn’t come out of the blue. At the start of July, a Shanghai regulator said that it held a meeting with stakeholders to urge the local government to consider a strategic response to stablecoins and digital currencies. The meeting had been organised by the Shanghai State-owned Assets Supervision and Administration Commission, with experts from various companies, and it’s part of what has led to this new push from the Chinese government.
According to a post on the regulator’s WeChat account, He Qing, the regulator’s director, said that the country needs to have “greater sensitivity to emerging technologies and enhanced research into digital currencies.”
Now, an exclusive report by Reuters states that China’s State Council (Cabinet equivalent) is expected to approve a comprehensive roadmap within the next few weeks.
A push against dollar dominance
The news reveals a desire for China to grow the yuan’s role in international finance, which is currently quite limited. According to a report by SWIFT, the RMB’s share as a global payment currency was only 2.88% in July 2025. In contrast, the US dollar had a share of 47.94% in the same period.
When you consider that China is the largest economy, the low market share is definitely concerning to the Chinese government. However, it’s not undeserved and can be attributed to the tight controls that China puts on its currency and financial transactions.
Now, China views a yuan-backed stablecoin as a means to chip away at the USD’s market dominance. At the moment, dollar-backed stablecoins account for over 99% of the yuan-backed coin supply. The Chinese government views this dominance as a significant way of strengthening the dollar, so the launch of the yuan-backed stablecoin is meant to chip away at the dominance. This push is in line with ongoing efforts to boost the yuan’s market share in international transactions.
A Departure from current crypto policies
The fact that China wants to allow yuan-backed stablecoins signals a significant policy shift. The country banned crypto trading in 2021, as it viewed it as a less controllable financial structure. It could offer Chinese citizens a level of anonymity and allow people to get wealth out of the country, which is against the country’s financial policies.
Instead of crypto, China prioritised the e-CNY, its central bank digital currency (CBDC). It’s a digital alternative to the Yuan, but China’s central bank controls it.
However, although it’s still in its early phases, the adoption has been slow. Alipay and WeChat Pay have continued to dominate everyday transactions in China, which has stifled the growth of the e-CNY.
When China allows the use of yuan-backed stablecoins, it will be a turning point in how Beijing sees crypto. However, it’s expected to be a parallel project to the e-CNY, not a replacement. Its major focus will be on offshore transactions, where it’s expected to boost the appeal of the yuan.
One thing to note here is that China operates a dual currency system that includes the onshore renminbi (CHY) and the offshore renminbi (CNH). Analysts expect that the stablecoins will be linked to the CNH rather than the CHY. So, Beijing will be able to test the adoption of its currency without risking its capital control at home.
That said, some major questions still remain. Considering that the stablecoins will be designated in the yuan, will they still be subject to the tight controls of the underlying asset?
Regulatory Framework Already in Development
According to sources, the People’s Bank of China is expected to take on the implementation duties for the stablecoins, with details on the framework expected within the next few weeks.
Since the target for Yuan-backed stablecoins is international trade, China seems to already have prime testing markets.
On August 1, Hong Kong’s stablecoin ordinance took effect. This made it the first comprehensive regulatory framework for fiat-backed stablecoins in Asia. and it strengthens consumer protection and market integrity. But at the same time, it also allows the Chinese government to test yuan-backed tokens without compromising its control over the mainland’s financial structures. The framework requires an institution to have 100% high-yuan-backed stablecoins in their matching currencies, whether that’s the USD, HK dollar, or any other currency.
Shanghai is also expected to play a huge role in this endeavour, with the financial hub already being responsible for the digital Yuan infrastructure. The international stablecoin operations are also expected to be based in the city, which is in line with China’s effort to make it a financial hub on par with New York and London. An internationalised stablecoin will fit neatly into that vision.
Not without its risks
While Beijing wants to challenge the dollar’s dominance, its caution is still visible. The current financial infrastructure is a reflection of that, with the major concerns being capital flight and money laundering.
These were also the main reasons behind the banning of crypto transactions and the launch of a centralised, state-controlled digital yuan system. The government wants transactions to have full traceability, but stablecoins don’t really play into that.
Even if they are issued by licensed banks or tech platforms, they inevitably operate on distributed systems. This in itself is enough to raise questions about the amount of capital control the People’s Bank of China (PBOC) can have on stablecoins.
According to reports, only a handful of state-linked institutions will be initially authorised to issue yuan-backed stablecoins. The PBOC will then have tight controls on major activities like redemption, with general transactions mainly aimed at B2B trade settlement rather than retail use.
However, the Chinese government still needs to find a balance. If there’s too much control, the stablecoins will be unattractive and ultimately irrelevant. If it’s too little, it will risk capital flight, which Beijing has been actively trying to prevent.
