Stablecoins, a type of cryptocurrency pegged to reserve assets like fiat currencies or commodities, have gained significant traction globally in recent years due to their relative price stability. Use-cases include acting as a store of value in countries with weaker fiat currencies and being used to reduce friction in enterprise-level cross-border payments. As of this month, the global stablecoin market reached an estimated $238 billion, a record high, underscoring their growing role in the digital economy.
Much of this growth has been driven by the popularity of dollar-backed stablecoins, which themselves have been supported by a favorable U.S. regulatory environment. In contrast, China has not yet embraced stablecoins despite its highly digitized payments ecosystem and its widespread implementation of the digital yuan central bank digital currency (CBDC).
With its increasing focus on yuan internationalization and Hong Kong’s emergence as a hub for Web3 experimentation, China may now be poised to explore yuan-backed stablecoins as a strategic counterbalance to Washington’s stablecoin dominance.
In recent years, private sector interest in stablecoins has been on the rise, with companies eager to capitalize on the market opportunities that they present. Popular stablecoins today include Tether’s USDT, Circle’s USDC and EURC, and Paxos’ PAXG, with these same issuers holding billions in U.S. Treasuries. Fintech companies like PayPal and Ripple, creator of the XRP Ledger blockchain, have also launched their own stablecoins with full regulatory approval.
Even social media giant Meta announced this month that it was exploring the possibility of using stablecoins for cross-border payments, enabling the social media giant to make small payouts to creators worldwide without the typical fees associated with wire transfers and traditional payment methods. Simultaneously, mainstream financial institutions like banks are also becoming increasingly interested in stablecoin utilization, viewing stablecoins as a low-volatility entry point into Web3.
In late January 2025, U.S. President Donald Trump issued an executive order entitled “Strengthening American Leadership in Digital Financial Technology,” which banned the creation of an American CBDC while explicitly promoting the development of “legitimate dollar-backed stablecoins worldwide.”
This was quickly followed by the Guiding and Establishing National Innovation for U.S. Stablecoins of 2025 Act (GENIUS Act), introduced to regulate and promote the adoption and use of U.S. stablecoins. The act has accelerated domestic interest and investment in dollar-backed stablecoin projects. Most notably, Tether CEO Paolo Ardoino revealed plans for a dollar-pegged stablecoin in 2025, shortly after news that World Liberty Financial, a crypto venture linked to Trump, launched a stablecoin used by an Abu Dhabi investment firm for its $2 billion investment in crypto exchange Binance.
While the United States has established itself as the leading player in cryptocurrency, Chinese consumers make up a significant portion of global cryptocurrency market participants, with China comprising over 21 percent of the global Bitcoin mining hashrate, despite the government’s ban on crypto mining. Therefore, while stablecoins remain banned in China for a variety of reasons, including the possibility that they could be used to circumvent the government’s foreign capital controls, stablecoin usage is undoubtedly on the rise, fulfilling use-cases such as providing an ability for Chinese citizens to use Tether to purchase Bitcoin.
However, the growing global adoption of dollar-backed stablecoins threatens to reduce China’s leverage in international digital finance. Zhang Ming, the deputy director of China’s National Finance and Development Laboratory economic think tank, published an opinion piece in late March highlighting these concerns among others. In his article, he proposed a three-part strategy to expand the yuan’s influence in the digital realm, to include expanding China’s CBDC, experimenting with Chinese-backed stablecoins, while also leveraging major homegrown fintech platforms to promote the yuan’s global usage.
As such, developing a yuan-pegged stablecoin would align with Beijing’s long-standing goal of challenging the dollar’s hegemony in global finance. Driven by popular fintech platforms like AliPay, WeChat Pay, and China UnionPay, China’s digital payments ecosystem already supports widespread cashless transactions domestically. Integrating yuan-backed stablecoins into these existing payment systems could provide a seamless path to international usage of a yuan-backed stablecoin, with use-cases focusing on cross-border trade and foreign direct investment (FDI).
Furthermore, a stablecoin linked to the digital yuan would offer a state-backed alternative to dollar-pegged tokens, potentially funneling international demand toward Chinese digital assets. This could improve China’s position as a leader in regulated digital finance, with China offering regulatory clarity around this emerging technology in a manner distinctly separate from Western influence.
Given that Hong Kong is increasingly serving as Beijing’s testing ground for digital finance and blockchain innovation, it is a logical place for China to begin. Hong Kong continues to position itself clearly as a global Web3 hub, with April 2025’s Hong Kong Web3 festival featuring opening remarks by Hong Kong Financial Secretary Paul Chan Mo-po and confirmation that Hong Kong will soon pass comprehensive stablecoin legislation.
In late 2024, the Hong Kong Monetary Authority (HKMA) commenced Phase 2 of its e-HKD pilot program, where the HKMA worked with 21 financial institutions to develop 11 use-cases for its CBDC and tokenized deposits, with this phase of the project having its own sandbox. Hong Kong also previously played a key role in the Bank for International Settlements-led Project mBridge, a multi-CBDC platform among several central banks that tested cross-border payments and settlements. Project mBridge reached a minimum viable product stage in mid-2024.
These examples illustrate China’s use of Hong Kong as a general sandbox for greater China, enabling innovation in industries like fintech and Web3 under its watchful eye.
While the United States has increasingly backed stablecoin innovation, and subsequently, the dollar’s dominance in Web3, China must decide whether it will stand aloof or become a more active player in the growing ecosystem of digital assets. A state-sanctioned yuan-backed stablecoin could bolster China’s ambitions to further internationalize the renminbi, providing a sovereign alternative to dollar-backed stablecoins while simultaneously positioning China as a leading influencer in digital finance.
However, it is important to note that regulation surrounding stablecoins remains critically important for governments to facilitate the successful adoption of these emerging technologies. This is where measured experimentation, particularly with the aid of Hong Kong’s innovative fintech ecosystem, might be beneficial. With the right support, yuan-backed stablecoins could become a strategic instrument of economic statecraft for the Chinese government.