China faces FOMO as dollar-pegged stablecoins expand rapidly

As Washington rolls out stablecoin rules, voices in Beijing are warning it’s time to catch up, or risk being left behind.

Beijing might finally be warming up to stablecoins, but not without hesitation. In a sign that China may be rethinking its digital currency strategy, a state media article this week reportedly urged policymakers to stop delaying and focus on “adapting to the trend of stablecoins,” the South China Morning Post reports, referring to the piece, published by Securities Times, a financial publication under the People’s Daily.

The piece called on Chinese authorities to begin developing yuan-backed stablecoins and start laying out regulations as the U.S. just passed a stablecoin bill, giving regulated issuers the green light to mint dollar-pegged digital tokens.

Chinese analysts and officials seem concerned this U.S. head start could deepen the greenback’s dominance in digital trade, and leave the yuan playing catch-up.

The article described stablecoins as an “emerging payment tool” that, while carrying risks, offer too many advantages to ignore. “The development of yuan-backed stablecoins should be sooner rather than later,” it said, citing a broad consensus among industry insiders.

No direct competition

That’s precisely where China’s anxiety lies. “For China, which is promoting the global use of the yuan, proactively regulating stablecoins and therefore facilitating the internationalisation of the yuan might be a better solution,” the Securities Times piece said.

The article adds to a flurry of voices in recent months urging Beijing to act, especially as trade tensions with Washington continue to escalate.

Liu Xiaochun, a deputy director at the Shanghai Finance Institute, told the outlet that yuan-based stablecoins could help China strike a balance between innovation and financial security. But he reportedly emphasized they shouldn’t try to “compete directly” with dollar-backed versions. Instead, the focus should be on “supporting emerging economies” and expanding yuan use in a more organic way.

Hong Kong, meanwhile, has already moved ahead. It’s set to launch a licensing regime for stablecoin issuers in August. But on the mainland, crypto trading remains banned and regulators haven’t shown much appetite for changing that anytime soon.

The U.S., by contrast, is pushing forward. Last week, the Senate passed the GENIUS Act, a bill that sets the ground rules for stablecoin issuance, requiring reserves and compliance with anti-money laundering laws. The vote passed with bipartisan support, though some Democrats, including Senator Elizabeth Warren, warned the bill was too soft on potential conflicts of interest, particularly those tied to Trump-affiliated crypto ventures.

Growing concerns

Still, industry voices cheered the move. Supporting the GENIUS Act, Christian Catalini, founder of MIT’s Cryptoeconomics Lab, told ABC News it “opens the floodgates” for competition and innovation, with consumers seeing real benefits.

Analysts at China International Capital Corporation didn’t miss the implications. In a note this week, they pointed out that most stablecoins are still pegged to the U.S. dollar. That alone helps reinforce the dollar’s status, they wrote. It reduces costs and makes greenback transactions easier, which, in turn, encourages more international use of U.S. currency.

The growing popularity of these digital dollars could even increase global demand for U.S. Treasuries, the CICC note said. But they also flagged potential downsides: rising geopolitical tensions and concerns over U.S. debt levels may eventually undercut confidence in the dollar. That could create an opening for other digital currencies, including, perhaps, a yuan-backed stablecoin.

Zhou Xiaochuan, former head of China’s central bank, echoed that concern last week at the Lujiazui Forum in Shanghai. The rise of stablecoins, he warned, could accelerate “dollarization” in parts of the global economy.

Multi-polar currency

As of press time, stablecoins represent a $261 billion market, according to CoinGecko. Of that, about 97% are dollar-pegged, with more than $1.4 billion backed by U.S. Treasuries.

Zhu Taihui, a senior fellow at the National Institution for Finance and Development under the Chinese Academy of Social Sciences, told the SCMP that offshore yuan-based stablecoins should be issued in Hong Kong “as soon as possible” and eventually expanded into China’s free trade zones.

Meanwhile, China is ramping up efforts on a parallel front: the digital yuan, or e-CNY. At the same Lujiazui Forum, the central bank’s current governor Pan Gongsheng pledged to establish an international operation center for the currency in Shanghai, reiteratting Beijing’s vision of a “multi-polar” global currency system that isn’t overly reliant on the dollar.

“Developing a multi-polar international monetary system will help strengthen policy constraints on sovereign currency countries, enhance the resilience of the system, and better safeguard global financial stability.”

Pan Gongsheng

But getting the yuan to compete globally still faces obstacles. As Morgan Stanley analysts noted in a research note, any meaningful rise of yuan-backed stablecoins will require easing capital controls and broader acceptance of the Chinese currency as their development “has been constrained by Beijing’s ban on domestic use, lingering capital controls, and insufficient global recognition given the dominance of USD-pegged stablecoins.”