China has been expanding use of digital currencies as it promotes wider use of its yuan, or renminbi, to reflect its status as the world’s second-largest economy and challenge the overwhelming sway of the U.S. dollar in international trade and finance.
Restrictions on access to Chinese financial markets and limits on convertibility of the yuan, or “people’s money,” remain major obstacles to its global use.
Hong Kong already has stablecoin regulations and some Chinese experts are urging rules to prepare for a possible stablecoin pegged to the yuan.
Officials at the People’s Bank of China and the State Council Information Office in Beijing did not immediately respond to requests for comment on a Reuters report that the State Council, or Cabinet, is preparing a plan for internationalizing the yuan that could include a yuan stablecoin.
In the U.S., President Donald Trump has made crypto-friendly policies a priority for his administration. He signed the GENIUS Act last month to regulate stablecoins.
How stablecoins work
Stablecoins are digital currencies tied to a specific currency such as the U.S. dollar. They are used as substitutes where transactions may be costly or difficult. Unlike cryptocurrencies such as bitcoin, they are meant only as a means of payment, not as speculative investments.
Dollar stablecoins are typically bought and sold for US$1 each. They are backed by reserves but issued by private institutions, not central banks like the U.S. Federal Reserve.
Stablecoins differ from central bank digital currencies, which are official digital versions of government-issued money. They run on blockchain-based ledgers and are considered “stable” because their value is pegged to a traditional currency.
Critics say stablecoins, by bypassing banks and traditional safeguards, may be most useful for illicit transactions.
China inches toward digital yuan
China launched its digital yuan, the e-CNY, on a trial basis in 2019. McDonald’s was an early participant. Regulators banned mining and trading of private cryptocurrencies such as bitcoin while encouraging the e-CNY.
China’s widespread use of electronic payments has eased adoption. Some cities pay civil servants in e-CNY. As of July 2024, 7.3 trillion yuan worth of transactions had been made in trial regions, state media reported.
China is also promoting e-CNY in Africa to support business ties.
But the e-CNY is not a stablecoin. Experts say new regulations are required to ensure stablecoins can be safely integrated with banks and payment systems.
Hong Kong’s role
Hong Kong, which has its own financial markets, currency and partial legal autonomy, enacted a stablecoin law effective Aug. 1.
Aimed at attracting wealthy investors, the law requires stablecoins tied to the Hong Kong dollar to be backed one-to-one by reserves.
As a global financial hub, Hong Kong often tests reforms for liberalizing Chinese markets. Still, yuan stablecoin regulations would be needed before one could circulate there, Liu Xiaochun, deputy director of the Shanghai Institute of New Finance, wrote on the financial site Yicai.com.
Limits on cross-border use
China’s yuan is not freely convertible and strict foreign exchange controls remain the biggest hurdle to its global adoption.
According to the Society for Worldwide Interbank Financial Telecommunication (SWIFT), the yuan ranked sixth for global payments by value in June, with a 2.88% share. Its use peaked in July 2024 at about 4.7%.
The yuan is used more frequently in trade financing, accounting for nearly 6% of such transactions. Most yuan payments flow through Hong Kong.
By comparison, the U.S. dollar accounted for more than 47% of global payments in June, followed by the euro, the British pound, the Canadian dollar and the Japanese yen.