The Economist Predicts Challenges for Yuan-Backed Stablecoins

Yuan stablecoin launch may boost assets tied to the US dollar.

China is unlikely to launch a mass-market stablecoin pegged to the yuan. The reasons include a limited supply of offshore assets and strict capital controls, writes The Economist.

On August 20th, it was reported that Beijing is considering allowing the use of stablecoins backed by the national currency. Journalists described this move as a response to the GENIUS Ac— a stablecoin bill signed in July by U.S. President Donald Trump.

However, in early August, Chinese financial regulators demanded that brokerage firms and think tanks cancel seminars and cease publishing research on stablecoins.

Cryptocurrency trading has been banned in China since 2021, making Hong Kong a testing ground for digital asset experiments. On August 1st, the region enacted legislation on stablecoins.

In 2024, the Chinese administrative region launched a “regulatory sandbox,” within which companies like JD.com and Standard Chartered are currently testing stablecoins for cross-border payments.

Theoretically, crypto-assets pegged to the offshore yuan could promote the Chinese currency on the global stage.

However, in practice, this is hindered by the small market scale: as noted by Morgan Stanley analysts, the pool of yuan deposits in Hong Kong is less than 1 trillion yuan. In comparison, this figure reaches 300 trillion yuan in mainland China. This limits the availability of liquid assets to back stablecoins.

China’s Self-Imposed Trap

An additional issue is the strict control over capital movement that China has established to protect its economy. Large sums are difficult to move abroad or freely convert into other currencies.

Regulators believe stablecoins could create a loophole in these rules, allowing restrictions to be bypassed and capital to be moved out of the country uncontrollably. This is why Beijing opposes such initiatives.

Even in more liberal Hong Kong, authorities, when issuing the first licenses, are focusing on stablecoins in Hong Kong dollars (which are pegged to the U.S. dollar) rather than yuan, to avoid risks to mainland China’s financial system.

According to the IMF, in 2024, Chinese users purchased stablecoins worth $18.6 billion, primarily through Binance. This indicates a high demand for digital assets that the authorities cannot fully control.

The widespread adoption of a yuan-backed stablecoin could increase capital outflow, undermining financial stability, which concerns regulators.

The Economist believes that even if successfully launched, a coin pegged to the Chinese national currency would struggle to compete with dollar equivalents due to geopolitical risks and the limited convertibility of the yuan.

In mid-August, Bloomberg suggested that China’s weak economic performance could drive growth in the altcoin market.