China is advancing a significant policy reversal by preparing to legalize yuan-backed stablecoins, a move currently under review by the State Council with potential approval anticipated by the end of August 2025. This development marks a departure from the 2021 ban on cryptocurrency trading and mining, signaling a strategic recalibration in China’s approach to digital assets. The legalization framework aims to establish clear regulatory responsibilities and risk controls under the auspices of the People’s Bank of China (PBOC), thereby ensuring a controlled and supervised environment for stablecoin issuance and usage. Significantly, Hong Kong and Shanghai have been identified as pilot hubs for this initiative, underscoring their roles as pivotal centers in the evolving yuan stablecoin ecosystem. The new policy includes detailed instructions for risk management such as capital flow monitoring and cross-border compliance, reflecting a comprehensive regulatory approach. This move parallels other cryptocurrencies’ early adoption phases, where community engagement and infrastructure development were critical for growth.
The core objective behind legalizing yuan-backed stablecoins is to bolster the internationalization of the Chinese currency, expanding its utility as a cross-border settlement instrument. Currently, US dollar-backed stablecoins dominate the global market, accounting for over 99% of stablecoin supply. China’s initiative seeks to challenge this dominance by facilitating the yuan’s use in international trade and payments, particularly with partner countries. This aligns with broader ambitions to increase the yuan’s share in global payments beyond the modest 2.88% recorded in June 2025. The Shanghai Cooperation Organization Summit, scheduled for late August 2025, is expected to spotlight these internationalization efforts. Moreover, the PBOC Governor Pan Gongsheng has emphasized the importance of reducing reliance on a single currency. This move also reflects China’s strategic goal to counter the U.S. dollar dominance in global finance through digital currency innovation. However, the volatility and speculative nature seen in other digital currencies highlight challenges in maintaining price stability for yuan-backed stablecoins.
Regulatory measures embedded in the roadmap emphasize risk prevention and capital controls, with the PBOC serving as the principal authority overseeing compliance and pilot project implementation. The division of regulatory responsibilities between mainland authorities and financial hubs like Hong Kong aims to balance domestic oversight with offshore market dynamics. Meanwhile, domestic blockchain firms, including Conflux, have begun issuing yuan-backed stablecoins, reflecting industry readiness and signaling a potential shift towards a more regulated and stable yuan stablecoin market. Despite these advances, caution persists among market observers who highlight challenges posed by global capital controls and geopolitical tensions, which may temper the pace and extent of yuan stablecoin adoption worldwide. The experience of other cryptocurrencies with proof-of-work consensus mechanisms underscores the importance of scalability and security in digital currency deployment.
