Bitcoin, ethereum and the stablecoin USDT are promoted at a cryptocurrency store in Hong Kong on July 29, 2025. — AFPOn August 20, 2025, news broke that China is actively considering the launch of a yuan-backed stablecoin: its boldest move yet in the digital currency race. The rollout, to be tested in Hong Kong and Shanghai, is part of Beijing’s broader effort to strengthen the yuan’s role as an international currency. The announcement is striking.For years, China has been among the most aggressive jurisdictions in cracking down on crypto trading and mining; yet it has also led the way in central bank digital currency (CBDC) experiments, with its digital yuan already deployed in pilots across major cities. So why a stablecoin – and why now?The timing is no coincidence. In the US, the GENIUS Act has established the first federal framework for dollar-backed stablecoins, unlocking institutional investment and propelling market leaders like Circle and Coinbase to new heights. Even Federal Reserve governors are now openly urging policymakers to embrace innovation and shed their historically cautious stance. China, meanwhile, faces a different challenge: its state-backed digital yuan has failed to gain traction. Consumers already rely heavily on Alipay and WeChat for payments, and the CBDC has struggled to offer anything superior. Stablecoins, by contrast, have proven their utility in global markets. By experimenting offshore, Beijing hopes to create a parallel yuan-denominated instrument that can circulate internationally, settle trade with partners, and project influence abroad – all without dismantling its strict domestic capital controls.But no government can legislate stablecoin into success: they succeed because markets adopt them. Traders, exchanges, institutions and ultimately consumers decide whether they are useful. For China, the real question is not whether a yuan stablecoin can displace Alipay or WeChat at home, but whether it can compete offshore against dollar-based stablecoins that already dominate global liquidity. After all, the dollar underpins nearly every major commodity and trade flow in the world. Creating a parallel yuan instrument in Hong Kong or Shanghai is a powerful signal of ambition, but turning it into a trusted alternative is another matter altogether.The challenge is immense. Dollar stablecoins account for roughly 98 per cent of global supply, with USDT and USDC controlling the market. They enjoy deep liquidity, US regulatory clarity and, most importantly, global trust in the dollar. For a yuan stablecoin to gain traction, it must clear three hurdles: transparent reserves, predictable convertibility into CNH or CNY, and trust that sudden policy shifts won’t trap funds. Without these assurances, adoption will likely remain confined to pilot trade settlements and politically aligned jurisdictions.However, the reality is that whether China’s stablecoin succeeds or not is almost beside the point. The fact is that global momentum behind stablecoins is undeniable. What began as niche tools for crypto traders has quickly evolved into the bridge between traditional finance and the digital asset economy.With a market capitalisation exceeding $230 billion and daily transaction volumes above $20-30 billion, their reach now extends far beyond bitcoin and DeFi. Stablecoins are emerging as instruments of monetary policy, engines of cross-border liquidity and levers of geopolitical power. Unsurprisingly, every major economy and institution intent on staying ahead is moving into this space: global banks like JPMorgan and Citigroup are building their own stablecoins, while retail giants such as Amazon see them as a way to cut billions in credit card fees.History suggests such transformations are rare. Money has only changed form a handful of times: from cows (6000 BC) to shells (3000 BC), to coins in Lydia (600 BC), to paper banknotes in 7th-century China, and to digital dollars in the 20th century. Each shift redefined how economies functioned and how power was exercised.In 2025, stablecoins appear to be the next leap: programmable, internet-native, and poised to reshape global payments and financial infrastructure. They are no longer just rails for crypto trading; they are geopolitical instruments, the newest front in the contest between great powers.The writer is an Islamabad-based lawyer and Strategic Legal Counsel at HP | FKM. She can be reached at: mariam12saleem@gmail.com
