China’s Tech Giants Seek Offshore Yuan Stablecoins to Compete with the Dollar

China’s major technology companies, JD.com and Ant Group, are pressing the country’s central bank to allow stablecoins tied to the offshore yuan.

Their goal is to launch these digital tokens in Hong Kong, hoping to make the yuan more widely used in global trade and to challenge the dominance of US dollar-backed stablecoins.

Stablecoins are digital currencies linked to assets like the dollar or gold. They allow fast, low-cost, and borderless payments using blockchain technology. JD.com and Ant Group plan to issue stablecoins backed by the Hong Kong dollar after new regulations take effect in August.

However, they argue that only stablecoins pegged to the yuan can help China’s currency gain ground, since the Hong Kong dollar is itself tied to the US dollar. The global stablecoin market is valued at about $247 billion, but experts expect it could reach $2 trillion by 2028.

More than 99% of stablecoins are denominated in US dollars, according to the Bank for International Settlements. China, despite being the world’s second-largest economy, has seen the yuan’s share of global payments fall to 2.89%, while the dollar holds 48.46%.

Many Chinese exporters now use dollar stablecoins like Tether (USDT) for international trade. In Hong Kong, the largest crypto over-the-counter exchange reported a five-fold increase in USDT trading volume among Chinese clients for trade settlements since 2021.

China Explores Yuan Stablecoins Amid Global Digital Currency Race

China banned cryptocurrencies in 2021, but officials are now discussing the potential of stablecoins for international payments. Some policy advisers suggest that using Hong Kong as a testing ground for offshore yuan stablecoins could help China avoid breaching its own capital controls.

US dollar stablecoins, such as USDC, are mostly backed by US Treasury securities and cash. Issuers provide regular transparency reports and undergo third-party audits, which gives users confidence in the value and security of these tokens.

The US has also moved to regulate stablecoins, requiring full backing by Treasuries and clear rules for issuers. China’s push for yuan stablecoins faces significant challenges.

The country’s financial system is less transparent than Western markets, and capital controls limit the yuan’s free movement.

These factors make it difficult for international users to trust yuan stablecoins as much as dollar-backed ones. The outcome of this competition will influence the future of digital payments and global trade.