China Races to Refine Stablecoin Policy Amid US, Market Pressure

China is accelerating development of its own stablecoin strategy as it faces growing competition from the United States in the digital currency sector. Officials are considering new policy directions as the adoption of yuan-backed stablecoins remains limited, emphasizing concerns about volatility and cross-border payments.

In June, People’s Bank of China Governor Pan Gongsheng addressed stablecoin market volatility. He explained that stablecoins—which are digital currencies typically pegged to government-issued currencies—might transform international payments and help reduce the impact of geopolitical tensions. According to Pan Gongsheng, “Stablecoins could revolutionize international finance, particularly as rising geopolitical tensions highlight the fragility of traditional payment systems, which he warned can be politicized and used as a sanction tool.” Former central bank governor Zhou Xiaochuan warned that stablecoins linked to the U.S. dollar could increase use of the dollar globally, which could affect China’s currency stability.

U.S. lawmakers have recently approved new rules for stablecoins, intensifying competition. Treasury Secretary Scott Bessent said, “Global users are likely to favor US-backed stablecoins over central bank digital currencies from Europe or China, citing greater trust in the private sector under US regulation than the risk of government control elsewhere.” Current projections estimate that U.S. dollar-backed stablecoins, mainly supported by assets like short-term Treasury bills, could supply up to $3.7 trillion by 2030.

A new regulatory framework in Hong Kong has prompted tech giants including JD.com and Ant Group to pursue stablecoin licenses. This move aims to solve challenges in yuan stablecoin adoption and update digital currency regulations. JD.com has announced plans to reduce cross-border payment costs by 90% and cut settlement times to under 10 seconds. According to Robin Xing of Morgan Stanley, “Stablecoins are not new currencies, but new distribution channels for existing ones. It is crucial for China to embrace the trend of sovereign currency tokenization to maintain competitiveness in the digital infrastructure race.”

Adoption of China’s official digital yuan, the e-CNY, remains small within and outside China. Regulatory worries and stablecoin instability pose additional hurdles, and recent international moves, such as the Bank for International Settlements withdrawing from the mBridge project, create further complications.

In February, more than 30% of China’s goods trade was settled in yuan, marking a decade-high volume. This trend supports the case for yuan stablecoins but also highlights the challenging environment as competition in cross-border payments heats up. Li Yang, Chairman of China’s National Institution of Finance and Development, has recommended that China continue existing policies like currency swaps, while boosting efforts in Hong Kong to facilitate the use of yuan-based digital currencies offshore.

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