Commentary: Why China Is Right to Reject Stablecoins

[para. 1] As global efforts to regulate stablecoins intensify, particularly in the United States, China is purposefully advancing its digital yuan initiative. This strategy is characterized as a judicious means to safeguard the nation’s monetary sovereignty and national security during a period of heightened geopolitical competition, rather than an indicator that China is behind in adopting financial innovations.

[para. 2][para. 3] Since May 2025, there has been a surge in legislative activity worldwide, as countries like the U.S. strive to manage stablecoins and other crypto assets. This regulatory momentum has spurred significant capital flows and institutional interest, resulting in vigorous debates within China about whether to embrace a yuan-backed stablecoin, especially given recent U.S. policy developments that prevented the Federal Reserve from issuing a digital dollar. At stake are vital questions concerning the direction of China’s monetary system, national security, and strategic ambitions as a financial power.

[para. 4] The People’s Bank of China (PBOC) has recently clarified its intent to enhance the digital yuan’s function within the monetary system and to accelerate its rollout. Initiatives include setting up an international operations center in Shanghai for cross-border transactions and establishing a Beijing center focused on the system’s maintenance and development.

[para. 5][para. 6] On November 28, the inter-ministerial coordination mechanism against virtual-currency speculation—comprised of 13 departments, including the PBOC—reasserted its prohibition of virtual currencies, explicitly classifying stablecoins as virtual currencies subject to suppression. This policy decisively quashes hopes for the relaxation of China’s crypto ban or the promotion of yuan stablecoins. The policy now is to push forward with the digital yuan while continuing strict restrictions on other virtual currencies.

[para. 7][para. 8][para. 9][para. 10] Dollar-pegged stablecoins, especially Tether’s USDT, dominate the global stablecoin market, accounting for over 99% of all fiat-backed stablecoin market capitalization and transaction volume. This dominance is underpinned by the liquidity and global reach of the U.S. dollar and the permissive U.S. stance towards crypto assets, which is intended to further entrench dollar usage worldwide—bolstering demand for U.S. Treasurys and reducing American borrowing costs. As legislation like that passed on July 18, 2025, supports these dynamics, non-dollar stablecoins have little competitive potential on the global stage, meaning that China or other countries would find minimal international traction if they issued their own stablecoins.

[para. 11][para. 12][para. 13] The recent pro-crypto tone from President Donald Trump, following his re-election in November 2024, has fueled global speculation and further expanded the dollar stablecoin market. However, this growth has compounded challenges for other countries trying to monitor dollar flows and maintain financial stability, while creating vulnerabilities to their monetary sovereignty. U.S. legislation on stablecoins—though requiring 100% reserves—contains loopholes that could trigger market instability and arbitrage, all while prioritizing American interests over global stability.

[para. 14][para. 15] Originally, stablecoins were intended to facilitate crypto trading as a bridge between traditional and digital finance. Their unregulated proliferation, however, has exacerbated the concentration of global wealth. The entrance of regulated banks offering “tokenized deposits” could make private stablecoins obsolete, as these institutions can better satisfy regulatory and anti-money laundering requirements, indicating that the U.S. regulatory trend may eventually eliminate the need for stablecoins altogether.

[para. 16][para. 17][para. 18] China’s strength in digital payments and the digital yuan means that a yuan-pegged stablecoin would offer no clear benefits domestically and would hold limited international appeal. On the contrary, it could expose China to financial crimes and increase exposure to U.S.-controlled crypto infrastructure. As a result, China’s best course is to shut the door on stablecoins and focus on advancing the digital yuan, in pursuit of financial innovation while safeguarding national security and contributing to a more equitable international financial order.