Yuan-based stablecoin: Challenge to U.S. dollar or China new game?

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China aims to launch a yuan-backed stablecoin

The dual nature of the yuan

The yuan is a currency with a unique history and internal contradictions. It exists in two forms: the onshore CNY, used within mainland China, and the offshore CNH, which circulates in international markets. These two versions have slightly different exchange rates — creating a unique challenge for developing a digital stablecoin that would operate both domestically and abroad.

One of the key features of China’s financial system is strict control over capital flows. “Know Your Customer” (KYC) and Anti-Money Laundering (AML) regulations in China serve to strengthen oversight of every transaction. On one hand, this reduces risks of fraud and financial crimes; on the other hand, it severely limits user freedom and the appeal of the yuan as an international currency.

For international businesses and tourists, these strict restrictions become obstacles. As a result, the Chinese yuan has not gained popularity outside the country, even among allies such as Russia or Iran.

The story of Tether: How the yuan stablecoin stalled at the start

The idea of a yuan-backed stablecoin is not new. In 2019, Tether, the world’s largest stablecoin issuer, launched a token pegged to the offshore yuan. However, after the arrest of Zhao Dong — a key figure in the project, known in China as the “king of OTC” — further use and development of the token ceased.

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Hong Kong as a testing ground for China’s new opportunities

To bypass some restrictions, China is using Hong Kong — a special financial hub with a more liberal regulatory environment. Hong Kong regulators recently allowed licensed companies to launch stablecoins backed by any fiat currencies.

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This gives China the opportunity to test digital currencies on the international stage while maintaining strict control over the mainland market. However, even among major state-owned banks, only one has received a license to issue a stablecoin.

Behind the launch of a yuan-backed stablecoin lie not only technical but also political ambitions. China seeks to weaken the dominance of the dollar, which today controls the majority of global financial flows.

At the same time, the digital yuan is a tool of control that allows authorities to monitor and regulate all transactions, enforce sanctions, and fight corruption. But this “over-control” is also the biggest barrier to the currency’s international acceptance.

Conclusions: Prospects for the yuan-backed stablecoin

For now, the yuan stablecoin is more of an experiment and a control instrument than a real alternative to the dollar. However, China is making significant bets on technology and regulatory innovations in an effort to expand the influence of its currency on the global stage.

Whether Beijing can combine control with flexibility and create a truly competitive digital asset remains a question — the answer to which will shape the future of global finance.

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