Chinese economists on prospects of yuan-backed stablecoins

Issuance and circulation of yuan-backed stablecoins within the Chinese mainland are infeasible; Hong Kong presents a useful proving offshore market, said the experts.

As mentioned in the last post, we are publishing a series of articles to explore the ongoing discussions surrounding stablecoins in China. The following summary of the seminar hosted by the Shanghai Development Research Foundation (SDRF) was originally published on the SDRF’s official WeChat blog on June 20.

研讨会：关于全球稳定币和人民币稳定币

Seminar: On Global Stablecoins and the Yuan-Backed Stablecoin

Recently, the development of global stablecoins has accelerated significantly. The U.S. Congress is making steady progress on stablecoin legislation, and the Hong Kong Legislative Council has passed the Stablecoins Bill, attracting widespread attention from the global financial community.

In response, the Shanghai Development Research Foundation (SDRF) recently convened an internal seminar, inviting experts and scholars from Beijing, Shanghai, and Hong Kong to discuss the profound implications of stablecoins and explore corresponding strategies for China.

Participants included:

• Liu Xiaochun, Vice President and Director of Shanghai Research Centre on Finance Digitalisation, Shanghai Finance Institute; Vice President of China Academy of Financial Research, Shanghai Jiao Tong University

• Zou Chuanwei, Chief Economist of Wanxiang Blockchain; Director of the Centre for Frontier Research at Shanghai Institute for Finance and Development

• Zhu Taihui, Deputy Director of the Institute of Economic Development, JD Group; Distinguished Research Fellow of the National Institution for Finance & Development

• Tang Weicheng, Director of the Ant Group Fintech Centre

• Zhao Jiangong, Founder and CEO, Dongguan NVT Technology Co., Ltd

• Song Shuang, Assistant Research Fellow at the Department of International Finance, Institute of World Economics and Politics, Chinese Academy of Social Sciences

• Wu Xinru, Professor of International Finance, East China Normal University

as well as colleagues from the SDRF.

Wang Yongli, former Vice President of the Bank of China, contributed a written intervention.

Key Takeaways:

1. Stablecoins are characterised by high transactional efficiency and low operational costs. They support global transactions on a 24/7 basis and are capable of enabling fast cross-border payments and settlements. However, they also entail a range of risks, including bank-run risk, regulatory arbitrage and cross-border jurisdictional challenges, as well as systemic financial risks.

2. During his second term, the Trump administration vigorously promoted legislation on dollar-backed stablecoins. This push was not solely aimed at advancing financial innovation; rather, it reflected a multifaceted strategic agenda. Key objectives included preserving the dollar’s supremacy, asserting leadership over the rules of decentralised finance (DeFi), and creating new demand for U.S. Treasuries.

3. For now, the issuance and circulation of yuan-backed stablecoins within the Chinese mainland are not feasible. Offshore markets, however, present a useful proving ground. To prudently advance the development of the yuan-backed stablecoin, it is recommended to first issue the stablecoin offshore for offshore use; then permit the offshore-issued coin to circulate onshore; and expand its scope step by step.

1. The current state and nature of stablecoins

Stablecoins are characterised by high transactional efficiency and low operational costs. They support global transactions on a 24/7 basis and are capable of enabling fast cross-border payments and settlements.

Stablecoins can generally be classified into four main categories: fiat-backed stablecoins, algorithmic stablecoins, crypto-collateralised stablecoins, and commodity-collateralised stablecoins. According to data from CoinGecko, a cryptocurrency data tracking and analytics platform, the total market capitalisation of stablecoins stood at approximately USD 262 billion as of June 2025. Dollar-pegged stablecoins—such as USDT and USDC—accounted for approximately 95% to 98% of the total market.

In essence, stablecoins are not true currencies, but rather digital payment instruments or tokens whose value stability relies on pegged assets or algorithmic mechanisms. The credibility of dollar-backed stablecoins primarily depends on the international reputation of the U.S. dollar itself, as well as the issuer’s ability to maintain adequate, transparent, and redeemable reserve assets. The rise of dollar-backed stablecoins is driven by a combination of market dynamics, technological innovation, and the strategic intent of the U.S. government to preserve the dollar’s global dominance.

The U.S. GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins) requires issuers to maintain reserves on an at least 1 to 1 basis, with reserves including U.S. dollar cash or highly liquid assets such as short-term Treasury bills. It also explicitly stipulates that large stablecoins (with more than $50 billion in consolidated total outstanding issuance) must prepare an annual financial statement and maintain anti-money laundering (AML) and sanctions compliance programmes.

The Hong Kong Stablecoins Bill requires licensees to maintain a reserve asset pool at least equal in value to the outstanding stablecoins. These reserve assets must be high-quality and highly liquid, such as bank deposits with maturities under three months, marketable government or central bank bonds, and repurchase agreements. The bill further mandates that the designated reserve asset pool be segregated from other assets, safeguarded by independent custodial arrangements, and governed by strict management protocols, including daily reserve reconciliation, weekly disclosures to regulators, regular third-party audits, and public transparency measures.

2. The strategic intent behind the United States’ promotion of dollar-backed stablecoins

During his second term, the Trump administration vigorously promoted legislation on dollar-backed stablecoins, reflecting a multifaceted strategic agenda aimed at consolidating the United States’ dominant position in the global financial system.

The United States promotes the development of dollar-backed stablecoins as a means of preserving the global financial dominance of the U.S. dollar and expanding its international influence. By leveraging distributed ledger technology (DLT), dollar-backed stablecoins circumvent certain constraints of the traditional financial system (such as SWIFT), offering new channels for dollar circulation. This may enhance the global acceptability of the U.S. dollar and, to some extent, counter the recent trend toward de-dollarisation.

Another strategic objective behind the United States’ promotion of dollar-backed stablecoins is to assert leadership in shaping the rules of decentralised finance (DeFi). The distributed ledger technology that underpins stablecoins differs from the traditional two-tier system in terms of accessibility, programmability, and security, and serves as a foundational layer for the development of Web3 and digital financial infrastructure. By establishing legislation to regulate the stablecoin market, the United States seeks to gain rule-making authority over digital financial infrastructure, thereby securing its leadership in the future global financial system.

The widespread adoption of dollar-backed stablecoins has created a new source of demand for the U.S. dollar. The reserve assets underpinning these stablecoins (such as USDT) consist primarily of short-term U.S. Treasury Bills. For instance, Tether holds approximately $120 billion in U.S. Treasuries, surpassing Germany to become the 19th largest holder of U.S. debt globally. This demand provides support to the U.S. Treasury market and, indirectly, reinforces the credit standing of the U.S. dollar. However, the contribution of stablecoins to Treasury demand remains limited. The rapid growth of U.S. national debt could erode the dollar’s creditworthiness, thereby undermining confidence in dollar-backed stablecoins.

3. Risks of stablecoins

First, bank-run risk. A loss of market confidence in the issuer of a stablecoin, or inadequate liquidity of its reserve assets, could trigger mass redemptions and cause the stablecoin’s value to collapse. This mirrors the dynamics of a traditional bank run. However, the decentralised structure and cross-border circulation of stablecoins make such events more difficult to regulate.

Second, regulatory arbitrage and cross-border jurisdictional challenges. The decentralised nature of stablecoins enables cross-border circulation, but it also creates opportunities to evade regulatory oversight and circumvent capital controls. Stablecoins are widely used for on- and off-ramp transactions and asset transfers in virtual asset trading. However, in the absence of compliant channels, some of these transactions have been linked to money laundering and illicit capital flows. Furthermore, inconsistencies in global regulatory standards leave room for regulatory arbitrage.

Third, systemic financial risks. If tech companies were to issue stablecoins on a large scale, the magnitude and reach of such issuances could exacerbate volatility in financial markets. For instance, the deep integration of stablecoins with the traditional financial system could trigger contagion effects; a collapse of a major stablecoin could reverberate through the crypto-asset market and spill over into conventional financial markets. Moreover, the decentralised nature of stablecoins may erode central banks’ ability to control the money supply, thereby undermining monetary sovereignty. Additionally, the widespread use of dollar-backed stablecoins in developing countries could weaken local currency circulation, increase dependence on the U.S. dollar, and further compromise monetary sovereignty.

4. Some reflections on China’s development of stablecoins

First, it is currently not feasible to issue or use yuan-backed stablecoins within the Chinese mainland.

In mainland China, mobile payment platforms such as Alipay and WeChat Pay are already highly developed and cover the vast majority of payment scenarios, reducing the necessity for yuan-backed stablecoins. Moreover, China’s capital account remains partially closed, and the issuance and use of yuan-backed stablecoins domestically could complicate efforts to control capital outflows.

The yuan-backed stablecoins also conflict with existing laws. In 2021, the People’s Bank of China and nine other ministries jointly issued the “Notice on Further Preventing and Resolving the Risks of Virtual Currency Trading and Speculation”, which explicitly defined virtual currency transactions (including stablecoins) as illegal financial activities. The regulation prohibits all institutions from providing related services and deems the provision of services by overseas virtual currency exchanges to Chinese residents as illegal. Currently, there is no indication that this regulation will be revised. Nevertheless, some experts have called for a relaxation of legal restrictions on virtual currencies, including stablecoins, and for pilot programs to be conducted under regulatory supervision.

Second, issuing offshore yuan-based stablecoins carries positive significance.

Offshore renminbi stablecoins provide efficient, low-cost tools for cross-border payments in trade, investment, and the digital economy. They help expand the global circulation and acceptance of the renminbi, with strong potential for application particularly in Belt and Road countries and under the RCEP framework. Currently, renminbi internationalisation is constrained by its one-sided nature, driven primarily by Chinese enterprises and government policy. However, the decentralised features of offshore renminbi stablecoins can broaden the currency’s international use and help mitigate these limitations. They can also generate demand for renminbi-denominated safe assets, and by channelling investment into low-risk renminbi assets, further the internationalisation of renminbi financial instruments. This not only strengthens the renminbi’s global financial standing but also serves as a hedge against the influence of the dollar‑dominated digital financial system.

Third, the development model for yuan-backed stablecoins.

To prudently advance the development of the yuan-backed stablecoin, it is recommended to first issue the stablecoin offshore for offshore use; then permit the offshore-issued coin to circulate onshore; and expand its scope step by step.

As an international financial centre, Hong Kong possesses a mature financial infrastructure and a robust legal framework. Its Stablecoins Bill establishes regulatory guidelines for yuan-backed stablecoins, positioning the city as a suitable offshore pilot site to test market response and build operational experience. It is advisable that the issuing institution be a Chinese-funded entity with established expertise in cross-border payments and trade. Reserve assets should be held by an offshore renminbi clearing bank and managed by overseas branches of Chinese-funded financial institutions. Strict Know Your Customer (KYC), Anti-Money Laundering (AML), and Counter-Terrorist Financing (CTF) measures must be enforced to ensure the stablecoin is not used in ways that could compromise national interests.

Subsequently, the pilot can be extended to the domestic offshore market, with designated zones such as Lingang in Shanghai, Hainan, and Qianhai in Shenzhen serving as testing grounds for broader applications. Initially, the pilot may be limited to institutional investors, with gradual expansion based on prevailing conditions. Domestic commercial banks and payment institutions should be prohibited from offering exchange services for offshore renminbi stablecoins to mitigate the risks associated with cross-border capital flows. Concurrently, technical tools should be deployed to monitor domestic residents’ use of offshore renminbi stablecoins and to prevent illegal capital movement.