As the United States advances its legislative process on stablecoin regulation and Hong Kong opens up its stablecoin market, stablecoins are not only increasingly accepted by mainstream financial markets but are also becoming a driving force for development and innovation in the financial sector. Many international financial institutions have announced plans to develop their own stablecoins or to incorporate stablecoin-related activities such as trading and settlement into their operations. As a result, stablecoins are gradually moving toward the center of financial innovation.

While the U.S. passed the GENIUS Act, another piece of legislation related to digital currency, the Anti-CBDC Surveillance State Act, was also enacted. During the signing of the bills, President Donald Trump went a step further by announcing the establishment of a federal "Strategic Bitcoin Reserve" and a "U.S. Digital Asset Stockpile”. He also reiterated that he would "never allow" the U.S. to create a central bank digital currency (CBDC). This signals that the U.S. has made a strategic choice in its digital currency path: opting out of the sovereign digital currencies that are being developed by most other countries, and instead recognizing and supporting the development of token-based mechanisms like stablecoins.

In contrast, Mainland China appears to have chosen a different path, i.e., promoting the development of the digital yuan while continuing to prohibit virtual assets. This raises questions: Which of these two digital currency development paths is a better option? And does the rise of stablecoins have an impact on the adoption and growth of the digital yuan? These issues are drawing increasing attention amid the broader push to strengthen and expand the digital economy and the financial sector.

Amid the rapid development of digital finance, particularly stablecoins, China's stance on virtual assets appears to be softening. At this year’s Lujiazui Forum, People’s Bank of China (PBoC) Governor Pan Gongsheng publicly mentioned “stablecoins” for the first time. He stated that emerging technologies such as blockchain and distributed ledgers are driving the robust development of central bank digital currencies (CBDCs) and stablecoins, enabling “payment-as-settlement”, fundamentally reshaping the traditional payment system from the ground up and significantly shortening cross-border payment chains. The central bank’s positive attitude toward the technological development of stablecoins may signal a potential shift in China’s regulatory policy on digital assets. Moreover, given the progress being made in Hong Kong regarding stablecoins, various experiments and pilot programs are underway, offering alternative approaches to the advancement of the Chinese digital finance landscape.

Based on their current issuance mechanisms and characteristics, tokenized stablecoins do not offer any clear advantages in promoting or advancing the digital yuan within China. As it stands, the digital yuan issued by commercial institutions as a substitute for M0 and does not pay interest. In contrast, stablecoins, also issued in tokenized form, can function as M1 substitutes in the U.S., potentially offering interest returns but requiring issuers to maintain redemption obligations. While stablecoin issuers may derive certain commercial benefits, the value of issuing the digital yuan lies primarily in value-added services related to digital wallets and customer acquisition. Functionally, the digital yuan already supports peer-to-peer payments and low-cost transactions with zero fees on the client side, making the decentralized, real-time transaction advantages of stablecoins less compelling in this context. Moreover, the tokenized nature of stablecoins is subject to limitations and thus has an inherent gap between them and the legal tender status of the digital yuan. This disparity in creditworthiness, along with higher regulatory costs, makes it difficult for stablecoins to compete with the digital yuan.

Judging from the recent promotion and pilot programs of the digital yuan in the retail sector, its adoption has grown rapidly in scale. However, it still pales in comparison to the widespread and fast-paced development of mobile payment platforms like Alipay and WeChat Pay. While the digital yuan offers clear improvements over mobile payments in the mid-to-back-end infrastructure, these advantages are not as evident to consumers at the front-end. Given that mobile payment platforms today integrate a wide range of functions and application scenarios, the digital yuan’s single-purpose design as a payment tool faces strong resistance from these multifunctional platforms in the retail space. Even though mobile payments remain centralized in nature, they still pose significant competition to the domestic rollout of stablecoins. After all, within a sovereign country, the “decentralized” nature of stablecoins is difficult to realize effectively, and they do not offer meaningful advantages in terms of time or cost.

In this regard, the development of stablecoins does not pose a major threat to the growth of the digital yuan in China. On the contrary, stablecoins themselves are likely to face strong challenges from the already well-established mobile payment ecosystem.

However, due to their digital nature, stablecoins are widely regarded as a bridge between the digital world and traditional finance. Given their foundational role in virtual asset transactions, stablecoins are more competitive in areas such as DeFi and real-world assets (RWA), giving them greater vitality in the context of traditional finance's digital transformation and the trend toward financial disintermediation. In fact, over 70% of the transaction volume of mainstream stablecoins like USDT and USDC comes from virtual asset trading, making this the primary market for stablecoin usage. In this regard, many Chinese enterprises have already carried out successful experiments in Hong Kong and other regions. The "Stablecoin + RWA" model is maturing rapidly. By contrast, the development of the digital yuan in wholesale markets and asset transactions within Mainland China remains relatively cautious. Capital’s inherent drive toward liberalization often clashes with stringent financial regulations. In this context, tokenized stablecoins enjoy a natural advantage over the digital yuan.

Crucially, the financial disintermediation driven by virtual assets and asset digitization is not a true elimination of intermediaries, but rather a shift from physical to virtual, digital intermediaries. In essence, this is a transformation of the medium, not its removal. The digitization of finance facilitated by stablecoins, powered by technologies such as blockchain, smart contracts, and distributed ledgers, has significantly improved the transparency of financial assets, enabling more accurate risk assessment and pricing. This is reshaping traditional financial business models and enhancing the overall efficiency of financial operations. Therefore, the digital transformation of financial sectors is likely to be the area most profoundly impacted by the rise of stablecoins. The influence of stablecoins on the financial industry itself far exceeds their impact on the retail payment sector, and it also surpasses their influence on the adoption of digital yuan within China.

At the same time, stablecoins also require central banks to act as lenders of last resort to provide liquidity, and they still rely on sovereign currencies as the foundation for price stability. Therefore, even though stablecoins introduce new challenges to financial regulation, their development cannot exist independently of the current financial and monetary frameworks. In this context, as digital financial regulation becomes more refined, the space for regulatory arbitrage in stablecoin-related activities will gradually disappear. Within China’s financial environment, the development of RWA could potentially amplify risks related to money laundering, financial fraud, and other financial crimes. Much like the rise and fall of the P2P lending boom in the past, this highlights the need to strengthen regulatory oversight and risk control in these areas to avoid repeating the same mistakes. Echoing previous recommendations by ANBOUND to prohibit virtual assets, a similar level of caution should be exercised even if innovations and pilot programs involving stablecoins and RWA are allowed. A prudent regulatory approach remains essential to prevent financial risks stemming from regulatory gaps. Compared to the digital yuan, the development of stablecoins poses greater challenges to both financial regulation and broader social governance.

When it comes to the potential and future of stablecoins, there is growing consensus both within China and internationally that their greatest value lies in cross-border payments and capital flows. Against the backdrop of the international monetary system becoming increasingly regionalized and geopolitically fragmented, the decentralized nature of stablecoins gives them significant advantages over current sovereign digital currencies in terms of cost, speed, and cross-border security. The U.S. decision to pursue a tokenized approach to digital currency, rather than a fully centralized digital dollar, also reflects the widespread use of offshore U.S. dollars, which makes it difficult to implement a centralized solution. This has led to a market-driven compromise favoring tokenization. Moreover, Trump’s GENIUS Act strengthens the role and influence of fiscal policy in stablecoin issuance, effectively encroaching on the Federal Reserve’s traditional authority over monetary issuance.

However, rather than promoting the dollar and the issuance of short-term U.S. Treasury bonds, stablecoins rely more heavily on a mainstream international currency like the dollar as a stable anchor. The mutual support between the two rests on the dollar's credibility. An unstable dollar would negatively impact both stablecoins and U.S. Treasury bonds. Based on this logic, while stablecoins technically contribute to the dollar's international currency status, they do not provide additional support for its credibility. Furthermore, the U.S. requires that the issuance of dollar-denominated stablecoins be subject to strict regulation. Therefore, even dollar-denominated stablecoins cannot escape the geopolitical constraints of sovereign currencies. For international payments, despite their cost advantages, the decentralized nature of dollar-denominated stablecoins is significantly compromised, leaving them exposed to the risk of geopolitical currency wars.

The development of the digital yuan is also seen as a tool to advance the internationalization of the Chinese currency. However, the rapid rise of U.S. dollar stablecoins now poses a challenge to the cross-border expansion of the digital yuan. The digital yuan has made some progress through initiatives like the digital bridge project, which seeks to build a sovereign digital currency settlement mechanism in cooperation with other countries. While these bilateral or multilateral efforts have shown promising results, they are constrained by the scale of bilateral trade and the uneven development of digital infrastructure across countries. As a result, such initiatives struggle to break through the “digital hegemony” of the U.S. dollar and have limited direct impact on advancing the yuan internationalization. Given the dollar’s entrenched global status, the rise of dollar-backed stablecoins was perhaps inevitable. In response to this shift, many researchers have suggested leveraging Hong Kong’s role as an international financial and trade hub to promote the development of offshore yuan tokens, thereby creating a new front in the competition between the yuan and U.S. dollar stablecoins in the race for currency internationalization.

Hence, the tokenization of the U.S. dollar has effectively opened a new front in the geopolitical competition between sovereign currencies, posing a fresh challenge to the digital yuan. As researchers at ANBOUND have previously emphasized, the internationalization of the yuan ultimately depends on the outcome of this geopolitical contest among sovereign currencies. Similarly, a report by Morgan Stanley also points out that stablecoins are merely one of the tools for the Chinese currency’s internationalization, not a core strategy. The true driving force behind the yuan’s global rise remains the endogenous growth momentum of China’s economy.

At the same time, much like the disruptive impact stablecoins are having on the financial sector, the international expansion of stablecoins, particularly those backed by the U.S. dollar, also carries significant implications for global capital markets and cross-border capital flows. This not only affects the stability of yuan-denominated assets but also influences the movement of capital between China and the rest of the world. Its consequences for financial system stability and global competitiveness are particularly profound. Importantly, these impacts are not driven by stablecoins alone, but by the broader trend of financial digitization, infrastructure transformation, and the expansion of digital international financial services. Here, stablecoins have already demonstrated considerable competitiveness, especially in crypto asset markets, an area where the digital yuan is unlikely to compete directly. As such, the more strategic response may not lie in direct competition, but in accelerating the development of a stablecoin market pegged to the yuan. Doing so would help close the technological and market gap, and support the maturity and expansion of a robust digital asset ecosystem linked to the yuan.

Final analysis conclusion:

Overall, the formal integration of stablecoins into the regulatory framework has opened new avenues for their promotion and development in international markets. It also signals the official establishment of the U.S. digital currency development path, one that will have varying degrees of impact on the promotion and internationalization of the digital yuan. To respond effectively to this shift, it is essential for the Chinese policymakers to adopt differentiated strategies for domestic and international contexts, with a cautious yet open-minded approach. Particular attention should be given to the transformative changes stablecoins are bringing to the financial sector and the broader reshaping driven by financial digitization.

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Wei Hongxu is a Senior Economist of China Macro-Economy Research Center at ANBOUND, an independent think tank.