ChinaConsiders Issuing Yuan-Backed Digital Coins as Part of its Currency Transformation Strategy

China is set to take a significant step in its financial innovation journey, with plans to authorise yuan-backed stablecoins. This move comes as Beijing sees these digital currencies as a potential means to expand the use of the yuan in international finance.

The upcoming Shanghai Cooperation Organisation Summit, scheduled for August 31-September 1 in Tianjin, may discuss expanded yuan and stablecoin usage for cross-border trade. Central banks, financial regulatory authorities, and representatives from major financial institutions are expected to attend a study session at the end of the month to discuss the use of yuan-backed stablecoins in business contexts and to define operational boundaries and development frameworks for these applications.

The meeting would aim to establish a solid foundation for stablecoin applications in business contexts, with the People's Bank of China among the Chinese regulators that would oversee the implementation of yuan-backed stablecoins. Shanghai, the host city for the summit, is also establishing an international digital yuan operation center.

This proposed initiative comes as China faces mounting pressure from U.S. stablecoin adoption. In a significant reversal from China's 2021 ban on cryptocurrency trading and mining, the potential policy shift represents a bold step towards embracing digital currencies.

President Donald Trump endorsed dollar-pegged stablecoins shortly after taking office in January. However, the yuan's share of global payments dropped to 2.88% in June, its lowest level in two years, while the U.S. dollar maintained a commanding 47.19% market share, according to SWIFT data.

The blockchain technology underlying stablecoins enables instant, low-cost cross-border transfers that could disrupt traditional payment systems. Hong Kong is a primary testing ground for implementing yuan-backed stablecoins, with its new regulatory framework for fiat-backed stablecoin issuers now in effect.

However, strict capital controls in China present significant obstacles to stablecoin development and may limit their effectiveness in achieving broader international adoption. Detailed plans for the implementation of yuan-backed stablecoins should emerge in coming weeks, with the Chinese State Council expected to review a comprehensive roadmap for yuan-denominated stablecoins later this month.

As China moves forward with its plans for yuan-backed stablecoins, it will be interesting to see how this financial innovation shapes the global landscape of digital currencies and cross-border payments.

ChinaConsiders Issuing Yuan-Backed Digital Coins as Part of its Currency Transformation Strategy