China is preparing to take a decisive step in its digital monetary policy. Beijing is currently examining the possibility of authorising yuan-backed stablecoins, a major development after several years of severe restrictions on cryptoassets. According to Reuters, a roadmap could be presented to the State Council as early as the end of the month, paving the way for the issuance of these tokens directly linked to the national currency.
Key takeaways
- China is considering launching yuan-denominated stablecoins, a reversal after the crypto ban in 2021.
- The objective: to strengthen the international use of the yuan and reduce dependence on the dollar.
- The global stablecoin market is currently 98% dominated by dollar-backed tokens.
- Hong Kong and Shanghai are being considered as pilot areas for deployment.
- The focus will be on cross-border payments, particularly in trade with partner countries.
From ban to experimentation
In September 2021, Beijing banned cryptocurrency mining and trading, deeming these activities risky for financial stability. At the same time, the government invested heavily in its central bank digital currency (CBDC), the digital yuan, now in the advanced testing phase.
The potential legalisation of yuan-denominated stablecoins would therefore mark a strategic shift. It reflects the authority’s desire to use these assets as a lever for the internationalisation of the Chinese currency and as an instrument of influence in global finance.
Rivalry with the United States
This initiative comes against a backdrop of growing monetary competition. The stablecoin market, valued at nearly 288 billion $, is almost exclusively dominated by dollar-linked assets. In the United States, authorities and political figures – including Donald Trump – are showing increasingly clear support for these financial instruments.
For Beijing, launching yuan-backed stablecoins is a challenge to the greenback’s supremacy and a credible alternative to trading partners looking to reduce their exposure to the dollar.
Cross-border trade at the heart of the strategy
Sources familiar with the matter indicate that China’s roadmap will focus on cross-border payments. A yuan-denominated stablecoin could simplify trade, particularly with member countries of the Shanghai Cooperation Organisation (SCO). The topic is expected to be on the agenda of the next SCO summit scheduled for Tianjin at the end of August.
Hong Kong, which established a regulatory framework for stablecoins on August 1, and Shanghai have been identified as priority hubs for testing this system.
Towards a new geopolitical competition
According to Swift data, the yuan currently represents only 2.9% of international payments, compared to 47.2% for the dollar. The gap remains considerable, but Beijing believes that stablecoins could strengthen the attractiveness and international circulation of its currency.
If the project comes to fruition, it could usher in a new phase of geopolitical competition in the cryptoasset ecosystem, which has so far been dominated by the United States. This represents an opportunity for China to consolidate its financial influence, particularly in Asia and with strategic partners.
In conclusion, China’s opening to yuan-denominated stablecoins could reshuffle the cards in a market currently dominated by the dollar. If Beijing succeeds in establishing a credible alternative, this could accelerate the internationalisation of the yuan and offer partner countries a new cross-border settlement tool.
However, several challenges remain: strict capital controls, the confidence of international markets, and the ability of Chinese authorities to establish clear and stable regulations. The success of this initiative will also depend on the appetite of economic players to diversify their currencies in the face of American hegemony.
Ultimately, one question arises: are we witnessing the beginnings of a new multipolar monetary era, where the digital yuan and its derivatives will compete with the dollar in the arena of global finance?
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