Trump embraces the US dollar stablecoin, is the Chinese yuan ready to "shift" and join the stablecoin race?

As the United States becomes the latest major economy to establish a regulatory framework for digital assets, the horn of the global stablecoin race has sounded. This could not only further consolidate the dominance of the dollar but also pose a challenge to Beijing's efforts to elevate the international status of the renminbi. The acceptance of stablecoins in the United States and other jurisdictions, including the European Union, Singapore, and South Korea, signifies that these digital tokens, typically issued by private companies rather than states, may play an increasingly important and potentially key role in both international and domestic financial systems. As individuals, businesses, and Financial Institutions leverage its lightning-fast transaction speeds and lower costs compared to traditional banking systems, stablecoins are changing the landscape of global cross-border payments. In this digital financial contest, the two major economies of China and the United States are engaged in a digital battle for global financial hegemony.

China's Reluctance to Accept Stablecoins: History and Current Situation

So far, China has maintained a wait-and-see attitude, upholding its long-standing negative view on cryptocurrencies. The Chinese government is concerned that cryptocurrencies are speculative digital assets that could threaten financial stability, undermine the central bank's control over the monetary system, and become channels for fraud and money laundering. In 2017, the Chinese government banned cryptocurrency trading platforms and Initial Coin Offerings (ICO), subsequently ordering banks and payment platforms to refuse cryptocurrency transactions and shutting down bitcoin mining.

In contrast, the authorities have taken another approach to manage digital currency, developing a central bank digital currency (CBDC) called "Digital Renminbi" (e-CNY). Unlike stablecoins, which are typically issued by private entities and pegged to fiat currency, the CBDC is issued and regulated by the People's Bank of China (PBOC) as a legal tender. This allows the central bank to control the implementation of the financial system and monetary policy while enabling users to conduct near-instantaneous peer-to-peer transactions through digital wallets.

Central bank digital currency has been launched domestically and is currently being used to promote the internationalization of the renminbi, enhancing its influence in international trade and finance, especially in cross-border transactions. The People's Bank of China announced on June 18 that it will establish an international operation center for the digital renminbi in Shanghai to promote the internationalization of the renminbi and support financial innovation.

U.S. Stablecoin Strategy: Solidifying Dollar Hegemony

Morgan Stanley's economists wrote in a report on June 19 that stablecoins will "expand the influence of the dollar into cryptocurrencies, Web3, and emerging markets with low-cost, near-instant settlement methods." They believe that "for China, ignoring this trend could lead to a lag in the digital infrastructure race—especially as stablecoins increasingly become a bypass mechanism for traditional banking networks."

Dollar assets, especially U.S. Treasury bonds, have become the most commonly used reserve backing for stablecoins. According to data from the cryptocurrency data tracking agency CoinMarketCap, as of July 8, the total market capitalization of stablecoins is approximately $260 billion. The Bank for International Settlements (BIS) recently reported that over 99% of cryptocurrencies are denominated in dollars, a figure that far exceeds the dollar's share of 48% in global payments in May.

Standard Chartered's report in April shows that most US dollar stablecoins are backed by US Treasury bills (short-term US government bonds), and demand for these Treasury bills from issuers is expected to surge over the next four years. The report indicates that the two major stablecoin issuers globally, Tether Ltd. and Circle Internet Group Inc., have nearly 70% and 90% of their cryptocurrencies, respectively, supported by Treasury bills.

The estimates from investment banks highlight the potential impact of the growth of the stablecoin market on the continuation of the dollar's dominance. Standard Chartered Bank estimates that by 2028, the supply of stablecoins will increase to $2 trillion, about nine times the current supply. Analysts say this growth will generate approximately $1.6 trillion in new demand for U.S. Treasury bonds, enough to absorb all new Treasury bonds that President Donald Trump plans to issue during the remainder of his term. They wrote, "As the usage of stablecoins increases, this additional source of dollar demand should be able to support dollar hegemony and offset the current tariff concerns that threaten dollar hegemony in the medium term."

The Shift in Chinese Thinking? The Call for a Renminbi Stablecoin

The People's Bank of China has not yet made any significant public statements regarding its stance on stablecoins, but Governor Pan Gongsheng acknowledged that stablecoins are one of the emerging technologies that are changing cross-border payments, bringing both increased efficiency and regulatory challenges. In his speech at the Lujiazui Forum on June 18, Pan Gongsheng stated, "Supported by new technologies such as blockchain and distributed ledger, central bank digital currencies and stablecoins are thriving, making synchronous processing of payment settlements possible." He remarked, "This development fundamentally reshapes the traditional payment landscape, significantly shortening the cross-border payment chain. However, it also brings financial challenges, though he did not elaborate on these challenges."

Pan Gongsheng mentioned stablecoins, along with scholars and advisors calling for China to support a renminbi-backed token, which has sparked speculation that authorities may be changing their approach due to concerns that this rapidly growing market could be dominated by the United States and the dollar. With the U.S. Senate passing the GENIUS Act (i.e., the 2025 Guiding and Establishing American Stablecoin National Innovation Act) in June, the issue has become more urgent, and the bill is expected to officially take effect in August. The law will establish a federal-level regulatory framework for payment stablecoins, freeing them from a fragmented regulatory landscape and placing them under official oversight. Only licensed issuers will be allowed to issue stablecoins and must be backed by highly liquid dollar assets with at least a 1:1 ratio, including cash and U.S. Treasury bills maturing within 93 days.

Hong Kong: Pilot and Outlook of Renminbi Stablecoin

Some government advisors and experts indicate that, given the potential of stablecoins to change cross-border payments and disrupt traditional financial systems, Chinese regulatory authorities can no longer remain on the sidelines. Li Yang, an academician of the Chinese Academy of Social Sciences, stated: "It must be recognized that the trend of integration between stablecoins, cryptocurrencies, and traditional financial systems is difficult to reverse." He believes that most countries have shifted towards a model that supports the coordinated development of all three.

Since 2022, Hong Kong has been laying the groundwork to become an international center for virtual assets such as cryptocurrencies (VA), consolidating its status as a global financial hub and resisting competition from Singapore. Given that cryptocurrency trading activities in mainland China are banned, how China embraces stablecoins is a significant issue. Some experts, including Baidu's Li Yanhong and the chairman of Wanxiang Blockchain Lab, which focuses on blockchain technology, Xiao Feng, have stated that China should leverage Hong Kong's status as an international financial center to develop an offshore Renminbi stablecoin. When conditions mature, this pathway could also provide a framework for onshore stablecoins.

In May of this year, the Hong Kong Legislative Council passed the "Stablecoin Bill," which will come into effect as a regulation on August 1, establishing a comprehensive regulatory framework for digital assets. The bill will include mandatory licensing for issuing institutions, strict standards comparable to banks, and a requirement for stablecoins to be backed by reserve assets at a ratio of at least 1:1. The bill will allow licensed companies to issue stablecoins pegged to multiple currencies, not just the Hong Kong dollar.

Tether launched the CNHT stablecoin pegged to the offshore Chinese yuan in 2019, although its adoption has been limited. Wang Yongli, former vice president of the Bank of China, is one of the prominent figures in the financial sector advocating for a yuan stablecoin to counter the dominance of the dollar stablecoin and seize control of digital trade settlement. Zou Chuanwei, director of the Frontier Finance Research Center at the Shanghai Institute of Finance and Development, suggested that reserve assets supporting the offshore yuan stablecoin could be held in offshore yuan clearing banks and managed by the overseas branches of mainland financial institutions. This way, China can utilize internet IP blocking and other technical means to prevent domestic users from accessing offshore digital wallets and cryptocurrency exchanges, effectively managing capital outflows while not affecting domestic financial stability.

Conclusion:

The competition between China and the United States in the field of stablecoins is not only a contest of technology and markets but also an extension of national strategy and financial hegemony. The United States actively promotes the development of the US dollar stablecoin through the "GENIUS Act", attempting to consolidate its dominant position in the global financial system. Meanwhile, China is exploring the possibility of offshore renminbi stablecoins based on the digital renminbi through Hong Kong's "sandbox" pilot, aiming to enhance the international influence of the renminbi. This competition in digital currency will profoundly affect the future direction of the global financial landscape.