China’s Push for Yuan-Backed Stablecoin Could Disrupt Traditional Finance and U.S. Hegemony

China is exploring the issuance of yuan-backed stablecoins to boost the global adoption of its currency and counter the dominance of U.S. dollar-backed stablecoins, which hold over 99% of the global stablecoin market.

This marks a significant shift from China’s 2021 ban on crypto trading and mining, driven by concerns over the U.S. dollar’s influence in digital finance and a desire to internationalize the yuan. The State Council is set to review a roadmap in August 2025 that outlines adoption targets, regulatory responsibilities, and risk controls, with Hong Kong and Shanghai as key hubs for implementation.

Hong Kong’s stablecoin ordinance, effective August 1, 2025, positions it as a testing ground, while discussions at the Shanghai Cooperation Organization summit may further promote yuan stablecoin use in cross-border trade.

However, China’s strict capital controls and concerns over capital flight pose challenges, as does the yuan’s low global payment share (2.88% vs. the U.S. dollar’s 47.19% in June 2025). Tech giants like JD.com and Ant Group are pushing for yuan stablecoins, seeing them as a tool to enhance cross-border payments and compete with U.S. financial infrastructure.

A yuan-backed stablecoin could reduce reliance on the U.S. dollar in global trade and finance, as it offers a state-backed, stable digital alternative. With over 99% of stablecoins currently tied to the dollar, a yuan stablecoin directly competes with assets like USDT and USDC.

By promoting yuan stablecoins in international trade, especially within the Shanghai Cooperation Organization or Belt and Road Initiative countries, China could increase the yuan’s global payment share (currently 2.88%).

Stablecoins enable faster, cheaper, and more transparent cross-border transactions compared to traditional banking systems like SWIFT, which can take days and incur high fees. A yuan stablecoin could streamline payments for Chinese tech giants like JD.com and Ant Group, boosting e-commerce and trade in yuan-denominated markets.

Integration with China’s digital yuan (e-CNY) infrastructure could create a seamless ecosystem for domestic and international transactions, further incentivizing yuan use. A yuan stablecoin could bypass Western financial systems, reducing exposure to U.S. sanctions or restrictions on dollar-based transactions.

This aligns with China’s push for financial sovereignty and could appeal to countries seeking alternatives to U.S.-controlled financial networks. Hong Kong’s role as a stablecoin hub under its August 2025 ordinance could position it as a global leader in regulated crypto markets.

China’s strict capital controls, designed to prevent capital flight, may conflict with the open nature of stablecoin transactions. Regulators will need to balance innovation with oversight, potentially limiting the stablecoin’s global reach or creating a two-tier system (domestic vs. international use).

A state-backed stablecoin could legitimize digital currencies in traditional finance, encouraging other nations to explore similar initiatives. This could accelerate the shift from fiat to digital currencies globally. Integration with blockchain platforms like China’s Blockchain-based Service Network (BSN) could enhance interoperability.

Disruptions to Traditional Finance

Banks relying on cross-border payment fees (via SWIFT or correspondent banking) could lose revenue as yuan stablecoins offer faster, cheaper alternatives. This could pressure banks to adopt blockchain solutions or partner with stablecoin issuers.

Traditional financial institutions may face competition from tech firms like Ant Group, which could leverage stablecoins to provide integrated payment and financial services. A successful yuan stablecoin could gradually increase the yuan’s share as a reserve currency, challenging the dollar’s dominance. Central banks and financial institutions may diversify reserves to include yuan-backed assets.

If yuan stablecoins are integrated into DeFi platforms, they could enable new financial products (e.g., lending, derivatives) outside traditional banking systems. This could divert capital flows from banks to decentralized protocols, challenging their intermediation role. However, China’s centralized approach to digital currencies may limit DeFi integration unless regulators loosen control.

The introduction of a yuan stablecoin could push global regulators to accelerate stablecoin frameworks, as seen in Hong Kong’s ordinance. This may force traditional financial institutions to adapt to stricter compliance requirements or compete with regulated stablecoin issuers. Countries may face pressure to develop their own central bank digital currencies (CBDCs).

U.S. dollar-backed stablecoins like USDT and USDC could lose market share in regions where China has strong trade ties. This could disrupt the crypto market, forcing issuers to innovate or lower fees to compete. Stablecoin issuers may also face increased scrutiny from U.S. regulators, fearing a loss of financial influence.

Global trust in the yuan is limited due to China’s capital controls and political risks. Convincing international markets to adopt a yuan stablecoin over dollar-based alternatives will be challenging. Blockchain vulnerabilities or regulatory overreach could hinder scalability and security, impacting user confidence.

The U.S. and allies may counter China’s stablecoin push with sanctions, regulatory barriers, or competing digital dollar initiatives, slowing adoption. A yuan-backed stablecoin could disrupt traditional finance by reducing reliance on the U.S. dollar, streamlining cross-border payments, and accelerating digital currency adoption.

However, its success hinges on overcoming regulatory hurdles, building global trust, and navigating geopolitical tensions. While it may not immediately upend traditional finance, it could catalyze a gradual shift toward a multipolar financial system, with significant implications for banks, reserve currencies, and global trade.