China is considering yuan-backed stablecoins for the first time, with the State Council poised to review a framework on currency internationalization and stablecoin implementation later this month, as reported by Reuters.
This plan aims to delineate regulatory roles, establish risk management protocols, and assign the People’s Bank of China the task of implementation, while pilot projects are likely to take place in Hong Kong and Shanghai, per Reuters.
This shift marks a departure from China’s 2021 ban on crypto trading and mining, aligning with a broader goal to enhance the yuan’s status in cross-border payments, particularly as dollar stablecoins currently dominate the crypto landscape. According to Reuters, over 99% of the global stablecoin supply consists of dollar-pegged tokens.
The roadmap will likely coincide with messages from top leadership on the limits of commercial usage, with additional discussions about yuan’s role in trade expected around the Shanghai Cooperation Organization summit in Tianjin scheduled for Aug. 31 to Sept. 1, based on China’s official schedule.
Policymakers are confronted with a practical challenge: China’s capital controls influence the offshore circulation of any yuan-referenced token. In June, the yuan’s share of global payments was 2.88%, down from peaks experienced in late 2023, as indicated by SWIFT’s July RMB Tracker.
A stablecoin that maintains convertibility and adheres to regulations could facilitate invoicing and settlement in regional trade routes, while the decisions made regarding custody, redemption, and reserve structures would determine market acceptance and regulatory reassurance.
Hong Kong is set to serve as a key site for structured trials. The city’s licensing framework for fiat-referenced stablecoin issuers became effective on Aug. 1, following the publication of final guidelines on supervision, anti-money laundering, and application processes by the Hong Kong Monetary Authority (HKMA).
Interest from corporations is increasing, including Ant International’s intent to apply for a Hong Kong issuer license once the application process opens, according to Reuters. These actions pave the way for yuan-pegged instruments to operate offshore while interacting with mainland payment systems strictly through regulated channels.
Market analysis highlights the potential and limitations. The stablecoin market has recently hovered around the mid-$200 billion mark, with its growth linked to trading, collateralization, and settlement uses. Projections differ widely.
Some estimates, such as a frequently cited $2 trillion valuation by 2028, have faced skepticism, with J.P. Morgan reducing its forecast to $500 billion, indicating that payments constitute a minor share of demand. For a yuan-linked token to achieve growth, the framework for issuing would need to ensure transparency, par redemption, reserve quality, and alignment with existing e-CNY trials, all while conforming to China’s balance-of-payments regulations.
The functional design is more critical than terminology. An offshore yuan stablecoin could be structured with isolated reserves and defined redemption protocols, facilitating cross-border trade settlements, treasury functions, and market-making.
Onshore convertibility would still be subject to quota regulations and banking oversight. Stakeholders will need to examine how responsibilities are assigned between the PBOC, securities and banking regulators, and local entities in Hong Kong and Shanghai.
The sequence of policy actions is clear. Hong Kong’s regulations go into effect, issuers prepare their applications, mainland regulators establish guidelines for eligible uses and oversight, and cross-border pilot initiatives are coordinated alongside trade dynamics and financial hubs. The review by the State Council later in August will outline subsequent actions.
