China ponders over introducing yuan-backed digital coins to enhance global use of its currency, according to unnamed sources

Stablecoins, a type of cryptocurrency designed to maintain a constant value and usually pegged to a fiat currency such as the U.S. dollar, are gaining momentum worldwide. In a significant move, Hong Kong has recently implemented a stablecoin ordinance, positioning it as one of the first markets globally to regulate fiat-backed stablecoin issuers.

This regulatory move comes as China is also exploring the potential of stablecoins as a means to boost the internationalisation of the yuan. The Chinese State Council, along with domestic regulatory authorities, is expected to oversee the implementation of yuan-backed stablecoins for global trade and payments.

China's commercial hub, Shanghai, is establishing an international operation center for the digital yuan, and China's senior leadership is expected to meet for a study session focusing on yuan internationalisation and stablecoins. If approved, China's plan for the usage of stablecoins would mark a major shift in its approach towards digital assets.

The underlying blockchain technology of stablecoins enables instant, borderless, and round-the-clock transfer of funds at low cost, giving them the potential to disrupt traditional daily money moves and cross-border payment systems. This technology is viewed by Beijing as a promising tool for yuan internationalisation amid the growing influence of U.S. dollar-linked cryptocurrencies in global finance.

Meanwhile, Hong Kong and Shanghai are expected to be the main cities to fast-track local implementation of China's latest plan for stablecoins. An offshore yuan stablecoin in Hong Kong is considered a possibility, according to PBOC advisor Huang Yiping.

The global stablecoin market is currently around $247 billion, according to CoinGecko, but Standard Chartered Bank estimates that it could grow to $2 trillion by 2028. Other countries, such as South Korea, are also taking steps to allow companies to introduce stablecoins based on their local currencies and develop the necessary infrastructure.

In the U.S., President Donald Trump has backed stablecoins and is establishing a regulatory framework that helps legitimise dollar-pegged cryptocurrencies. However, the yuan's share as a global payment currency fell to 2.88% in June, while the U.S. dollar commanded a 47.19% market share.

As the world of stablecoins continues to evolve, it will be interesting to see how China's plans unfold and how they may impact the global financial landscape.

China ponders over introducing yuan-backed digital coins to enhance global use of its currency, according to unnamed sources