China Officials Signal Openness to Yuan Stablecoins Amid US Digital Dollar Push

China is increasingly considering the adoption of stablecoins, particularly yuan-pegged ones, to enhance the yuan's role in global finance and counterbalance the U.S. dollar's dominance, which is currently strengthened by extensive dollar-backed stablecoins. Despite a longstanding ban on cryptocurrencies, senior officials from the People’s Bank of China (PBOC) and other financial authorities have recently indicated openness to exploring stablecoins for cross-border payments and international trade, viewing them as a way to circumvent the geopolitical risks posed by traditional payment systems. Analysts, including those from Morgan Stanley, emphasize that stablecoins represent new distribution mechanisms for sovereign money and stress the importance of China embracing sovereign currency tokenization to remain competitive in digital financial infrastructure. Hong Kong's new regulatory framework for yuan-pegged stablecoins, effective August 2025, is a key element in China's strategy to internationalize the yuan, with major fintech and financial players participating in pilot programs. Economists recommend that China implement clear regulatory frameworks and pilot programs in free trade zones and Belt and Road markets, aligning regulations with principles of consistent risk management to increase yuan liquidity and global usage without compromising monetary control. However, challenges remain due to structural economic issues in China, and experts caution that stablecoins alone cannot overcome these fundamentals without complementary reforms.