China, stablecoin & the $US

Could stablecoin be the answer to China’s desire to decouple from the United States dollar? Some observers think it could help – but it’s likely any currency diversification will depend on the popularity of the yuan, rather than any one technology.

China has been open about its desire to bolster the yuan, and move away from its reliance on the $US. Part of that plan involves fostering the use of its own currency in cross-border transactions.

The share of renminbi in global payments recorded by the Society for Worldwide Interbank Financial Telecommunication (SWIFT) rose to 4.74 per cent in July 2024, but has since fallen to 2.9 per cent in May. Most renminbi transactions outside mainland China occur in Hong Kong; global use of the renminbi in trade settlements remains limited even after 15 years of promotion.

The emergence of stablecoins in the 2020s gave hope to the internationalisation of the renminbi, and the passing of Hong Kong’s stablecoins ordinance was viewed as a further step in that direction. The law established a licensing regime for fiat-referenced stablecoin issuers in Hong Kong, supervised by the Hong Kong Monetary Authority (HKMA). This resembles the Guiding and Establishing National Innovation for US Stablecoins Act (GENIUS).

The regulations in the US and Hong Kong have attracted significant market attention. Companies involved in issuing and trading stablecoins have seen their stock prices rally massively (notably, the post IPO performance of Circle). Reportedly, there were 43 research reports issued by 22 securities houses in China.

As an emerging fintech innovation, the use of stablecoins has grown with the average supply in circulation increasing by roughly 28 per cent, year-over-year. In 2024, total transaction volumes reached $US27.6 trillion. That’s more than the total volume of Visa and Mastercard transactions combined.

Stable

A stablecoin is a cryptocurrency pegged to a more stable asset like a fiat currency (like the $US) or a commodity (like gold). This overcomes the drawback of cryptocurrencies like bitcoin, as their value fluctuates more significantly. In short, stablecoin is a blockchain version of a currency peg with the operator acting as a private-sector version of monetary ‘authority’.

According to the Hong Kong ordinance, non-sovereign money is not a Central Bank Digital Currency. It constitutes securities or a futures contract.

At the time of writing, Tether (USDT) and USDC are the top two stablecoins by market capitalisation at $US158 billion and $US62 billion, respectively. These currencies are available on several major blockchains like Ethereum and Solana. There are, however, concerns associated with USDT regarding the stablecoin's underlying assets. Their backing portfolio primarily comprises short-term US Treasury bills and repo.

Governance and compliance are major issues related to privately run cryptocurrencies. The ability to meet customer withdrawals was a matter of concern. USDT was reported stolen in 2017. A handful of other incidents led to calls for tightening of regulations on cryptocurrencies such as stablecoins.

In June, the Bank for International Settlements (BIS) issued a high-profile report on stablecoins. The regulator is wary of potential risks to financial stability and monetary sovereignty, although BIS acknowledged the merits of tokenisation and stablecoins for financial innovation. BIS cites three requirements for being classified as money:

• singleness: it is backed and issued by a central bank that has a mandate to act in public interest;

• elasticity: it can meet the need for large-value payments in the economy so that obligations are discharged in a timely way without gridlock taking over; and

• integrity: it can fend against financial crime and other illicit activity.

In a nutshell, the regulator of central banks does not consider private digital paper to be central-bank money. The preference is to apply blockchain technology in banking within a regulated regime.

The path of digital transition will likely be tokenisation of financial assets in the two-tier monetary system (central bank plus licensed banks), notably tokenised central bank reserves and tokenised government bonds. An official cryptocurrency governed by a supranational body like the International Monetary Fund is something I’ve written about before.

General ledger

Asset tokenisation is the process of creating digital tokens on a blockchain that represents ownership or rights to a real-world asset. There will be many potential applications in a formal financial system.

In a Bloomberg interview, Larry Fink, chairman and CEO of BlackRock, said he believes “the next step going forward will be the tokenisation of financial assets, and that means every stock, every bond […] will be on one general ledger.”

McKinsey projects total tokenised market capitalisation, excluding cryptocurrencies, could reach $US2 trillion by 2030. Tokenisation in trade finance will also be a critical step to utilise blockchain in corporate banking.

A practical question is whether Hong Kong’s stablecoin regime will lift the internationalisation of the renminbi as some claim. Securities Times, a publication under People’s Daily, wrote “the development of [yuan-backed] stablecoins should be sooner rather than later”, warning the “unique advantages and potential risks of stablecoin cannot be ignored.”

Policymakers are testing the popularity of crypto yuan in a private setting. So far, a Chinese issuer has only launched $HK-backed stablecoin. With the rapid development of fintech applications, ANZ Research would neither endorse nor dismiss the prospect of yuan-backed stablecoin and its role in the global use of the renminbi.

Hinge

In ANZ Research’s view, the penetration of renminbi in international transactions hinges on fundamental economic factors. Structurally, exporters, importers and investors will prefer to transact and hold the yuan if they perceive a wider acceptance globally. Cyclically, the usage of yuan is also driven by short-term financial motives, notably interest rate differentials according to our observations in the last decade.

Technology for yuan-based cross-border transactions has been available for some time, such as the Cross-Border Interbank Payment System (CIPS), or e-CNY. They are the official platform for the blockchain application. These official channels are also efficient and advanced enough to support wholesale and retail transactions. The regulator is likely to rely on the official system and regard private stablecoins as a pilot only.

Chinese e-commerce platforms and their payment arms have been successful globally. Their adoption of stablecoin will promote the usage of yuan-stablecoin. But the ultimate question is whether buyers and merchants will prefer yuan transactions regardless of the supporting technology.

ANZ Research expects stablecoin, and other new tech, to add another option for countries that might not have sufficient financial or banking infrastructure to support renminbi transactions. But the number should be small.

In fact, many developing economies have already adopted CIPS. WeChat Pay and AliPay are already popular in Southeast Asia and gaining traction in Central Asia. CIPS serves as an enabler for the yuan to gain global acceptance.

$US-backed or $HK-backed stablecoins offer an alternative for China to reduce the reliance on SWIFT. Should China want to allocate less foreign reserve to $US, then stablecoins backed by other currencies are the alternative, not the yuan-backed stablecoin.

The issuance of yuan-backed stablecoin requires sufficient high-quality liquid assets. This could be limited by the issuers’ access to renminbi deposits, offshore China sovereign and sub-sovereign bonds and their access to the onshore bond market. Stablecoin issuance, and their reserve funds, will increase demand for these assets.

But ultimately, the success of renminbi internationalisation will drive yuan-backed stablecoins — not the other way round.

Raymond Yeung is Chief Economist Greater China at ANZ Research

This is an edited version of the ANZ Research report “Stablecoin and China’s de-dollarisation”, published July 3, 2025