In Depth: Trump’s Stablecoin Embrace Ups Pressure on China to Join Race

Calls are increasing for China to participate more actively in the global stablecoin market as regulatory frameworks are established by the U.S. and other major jurisdictions. These regulations raise concerns that stablecoins, typically issued by private companies and pegged to fiat currencies like the U.S. dollar, will reinforce the dollar’s international dominance and undercut China’s ambitions to internationalize the yuan [para. 1]. The adoption of stablecoin regulations by the U.S., European Union, Singapore, and South Korea suggests that stablecoins will become increasingly vital to both global and domestic financial systems, offering rapid, low-cost cross-border transactions that could disrupt traditional banking [para. 2].

Chinese corporations, including JD.com and subsidiaries of Ant Group, are pursuing stablecoin issuance licenses in Hong Kong, which is emerging as a regional leader in digital asset regulation and innovation [para. 3]. U.S. dollar-backed stablecoins are viewed by institutions like Morgan Stanley as extending the reach of the dollar into the digital economy, making it increasingly urgent for China to respond or risk losing influence in the digital financial landscape [para. 4]. However, mainland China has historically maintained a negative stance on cryptocurrencies due to concerns over financial stability, monetary control, and illicit activity, having issued bans on crypto trading and mining since 2017 [para. 5].

Instead of embracing private digital assets, Chinese authorities have prioritized the development and rollout of a central bank digital currency (CBDC), the e-CNY, fully issued and supervised by the People’s Bank of China (PBOC) [para. 6]. The e-CNY aims to enhance the efficiency of the domestic financial system and support the yuan’s internationalization in trade and finance; a new international operations center was recently announced in Shanghai to further this goal [para. 7][para. 8]. Yet, as stablecoins rapidly transform international payments, industry experts argue China should develop yuan-denominated stablecoins to boost its currency’s demand globally [para. 9].

The dominance of the U.S. dollar in the stablecoin market is overwhelming. As of July 8, 2024, the global stablecoin market cap stood at approximately $260 billion, with more than 99% denominated in U.S. dollars [para. 10]. Most U.S. dollar stablecoins are backed by U.S. Treasury bills, and projections by Standard Chartered Bank suggest that the stablecoin supply could grow to $2 trillion by 2028, substantially increasing demand for U.S. debt [para. 12][para. 13]. This continues to entrench the dollar’s role in the global financial system.

The PBOC has publicly acknowledged stablecoins as transformative but fraught with regulatory challenges, and recent regulatory moves in the U.S.—including the GENIUS Act, which establishes strong oversight and reserve-backing requirements—make the case for China’s participation more pressing [para. 15][para. 16]. Chinese academics and financial leaders propose leveraging Hong Kong’s regulatory environment to launch offshore yuan stablecoins, potentially providing a framework for future onshore yuan stablecoins and allowing China to remain competitive without relaxing its mainland ban on crypto trading [para. 21][para. 22][para. 26].

Hong Kong has set up a robust legal and regulatory architecture for stablecoins, allowing issuers to back currencies beyond the Hong Kong dollar and tying stablecoin issuance to mandatory licensing and reserve requirements. Leading companies, such as Tether, have already experimented with yuan-pegged tokens, but adoption remains low compared to U.S. dollar stablecoins [para. 24][para. 27]. Experts recommend using Hong Kong’s institutional resources and liquidity pool to develop an offshore yuan stablecoin, which would be custodied by offshore financial institutions and kept inaccessible to mainland users to preserve capital controls [para. 29][para. 32][para. 33]. This approach would allow China to adapt to the rise of stablecoins in a controlled manner, maintaining financial stability while supporting the yuan’s internationalization [para. 34].