China Explores Yuan-Backed Stablecoins to Boost Global Currency Usage
China is taking a significant step towards evaluating yuan-backed stablecoins for the first time, with the State Council gearing up to review a roadmap on currency internationalization and stablecoin usage later this month. This move, as reported by Reuters, aims to assign regulatory responsibilities, establish risk controls, and entrust the implementation to the People’s Bank of China. Pilot activities are expected to kick off in Hong Kong and Shanghai, marking a departure from China’s previous ban on crypto trading and mining in 2021.
The overarching goal behind this initiative is to expand the yuan’s role in cross-border payments, especially considering that dollar-pegged stablecoins currently dominate the crypto settlement landscape. With over 99% of global stablecoin supply tied to the US dollar, China’s decision to explore yuan-backed stablecoins reflects a strategic shift in its approach to digital currencies.
The roadmap under review will also include discussions on the boundaries for commercial use, with a focus on promoting yuan utilization in trade. This aligns with China’s efforts to enhance the yuan’s global payment share, which stood at 2.88% in June, according to SWIFT’s RMB Tracker. Despite facing challenges related to capital controls, China is exploring ways to facilitate the circulation of yuan-referenced tokens offshore.
Hong Kong is poised to play a pivotal role in this process, given its established licensing regime for fiat-referenced stablecoin issuers. Ant International has already expressed interest in applying for a Hong Kong issuer license, paving the way for the development of yuan-pegged instruments in an offshore setting.
As the stablecoin market continues to grow, the issuance architecture of a yuan-referenced token will be crucial in ensuring transparency, redemption at par, reserve quality, and compatibility with existing e-CNY initiatives. Operational design considerations will also be paramount, particularly in structuring ring-fenced reserves and clear redemption rules for cross-border trade settlement and treasury functions.
The policy sequence for implementing yuan-backed stablecoins is expected to unfold in the coming months, with coordination between mainland authorities, Hong Kong regulators, and market participants. The State Council’s upcoming review will set the stage for the next phase of development in China’s digital currency landscape.
Overall, China’s exploration of yuan-backed stablecoins represents a significant shift in its approach to digital currency innovation and internationalization. By leveraging stablecoins to enhance the yuan’s global presence, China aims to strengthen its position in the evolving digital economy.