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China’s reported pivot to a yuan-backed stablecoin & Japan’s green light for yen-pegged stablecoins signal the intent to reduce reliance on the dollar in digital transactions, explains Anvitii Rai. India, meanwhile, has preferred to keep away from stablecoins and watch how its CBDC pilot plays out
l China & Japan’s renewed interest
CHINA IS MULLING a yuan-backed stablecoin — a sharp shift from its 2021 ban on crypto trading and mining, according to Reuters. The token may be piloted in Hong Kong and Shanghai. Hong Kong enacted its long-awaited stablecoin ordinance on August 1, while a Shanghai regulator recently urged “greater sensitivity to emerging technologies and enhanced research into digital currencies.”
Until now, Beijing has kept control of digital currency through eCNY (its domestic central bank digital currency, or CBDC) and the mBridge project (for cross-border CBDC settlements). A yuan stablecoin could complete China’s digital currency bouquet as an offshore instrument, serving as a counterweight to the dollar.
Japan is also advancing: Its regulator is set to approve a stablecoin by startup JPYC this year. Financial giant Monex Group has signalled interest, with chairman Oki Matsumoto noting, “Issuing a stablecoin requires significant scheming and capital, but if we don’t handle it, we won’t be able to keep up with the times.” A yen-pegged stablecoin could help Japan regain its leadership in Asia’s financial ecosystems.
l The stablecoin paradox
BOTH STABLECOINS AND CBDCs are pegged to fiat currencies, but they differ fundamentally in issuance. Stablecoins are created by private entities, whereas CBDCs are issued directly by central banks. Stablecoins rely on reserves to maintain their peg as opposed to CBDCs, which are sovereign legal tender.
The “stablecoin paradox” arises because private issuers must guarantee stability yet also pursue growth and profits — often through leverage or financial intermediation. This has prompted major economies such as China and the US to seek alternative models, each charting a different path to reconcile innovation with control. It must be noted that stablecoins cannot completely avoid this rift because unlike CBDCs, they do not have the backing of a central bank to weather external shocks. Former People’s Bank of China governor Zhou Xiaochuan has also stressed on this, saying stablecoins can be used for speculative asset trading.
l Eye on digital finance market
BOTH CHINA AND Japan’s stablecoin strategies are about reducing reliance on foreign currencies, read dollar, in digital transactions. Stablecoins account for over 50% of global crypto trading volumes. Whoever dominates the stablecoin market would get to determine the rules for digital finance. Dollar-pegged stablecoins such as Tether and USDC currently dominate the global market, accounting for around 99% of transactions. The US recently enacted the Guiding and Establishing National Innovation for US Stablecoins Act (Genius Act), its first federal framework for “payment stablecoins.” It mandates 1:1 backing to the dollar with 100% reserves, monthly public disclosures, and strict marketing rules, including a ban on claims of government backing.
While Washington has embraced private stablecoins, a CBDC faces stiff resistance. Republican lawmakers have warned a digital dollar could enable state surveillance. Federal Reserve chair Jerome Powell assured Congress last year that a CBDC is not on the cards.
l India’s stance: At arm’s length
LAST MONTH, AT the FE BFSI Summit, Reserve Bank of India governor Sanjay Malhotra had said that a government-appointed committee is studying the issue of cryptocurrencies, with the RBI being part of it, and the discussion paper is awaited. “We have already raised concerns about monetary policy transmission, capital flow disruptions, and systemic vulnerabilities,” he said. “The Genius Act will undoubtedly be considered, but any change in stance must be weighed carefully.”
Yet, adoption is high: A 2024 report by blockchain analytics firm Chainalysis ranked India first in its Global Crypto Adoption Index. CoinDCX CEO Sumit Gupta has said that a rupee-based stablecoin could cut India’s remittance costs by upto 90%, a significant advantage given India is among the world’s top recipients of global inflows. Remittances peaked at over $124 billion in 2024. With most trade settlements in the dollar, a rupee-backed stablecoin would also offer Indian companies a sovereign alternative to foreign currencies.
l Lessons for India
THE WORLD’S TWO economic giants are shaping stablecoin regulations, and sooner or later, these will be integrated into global finance, transforming how we transact. Their approaches, however, diverge sharply. In the US, private stablecoins are being backed, reflecting confidence in the dollar’s role as the world’s reserve currency and concerns among bankers about deposit outflows and excessive state control. China, by contrast, maintains a tight grip, issuing only its CBDC (eCNY) while signalling that any future stablecoins would be strictly controlled. The dragon’s goal is advancing yuan internationalisation.
For India, the more relevant example would be Japan. Its emerging framework allows private stablecoins to operate on public blockchains, combining oversight with transparency and market participation. This balances innovation with safeguards — a model India could adapt as its financial ecosystem matures.
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