From navigating trade restrictions to overcoming regulatory barriers, more traders are embracing the digital asset – but not without risks

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In this explainer, the Post outlines four roles that US dollar-backed stablecoins play in China’s overseas trade, based on a recent analysis by Zou Chuanwei, the president of the Jiangsu Jinke Research Institute on Digital and Technology Finance, published in Tsinghua Financial Review.

How are Chinese traders using US dollar-backed stablecoins?

First, some overseas importers face regulatory barriers that restrict them from using traditional US dollars. They can, however, pay with US dollar-backed stablecoins. Overseas importers use the latter to buy goods in mainland China, with onshore converters turning the digital assets into yuan.

For Chinese exporters, the process remains similar to that of a traditional transaction, except third-party institutions – such as stablecoin payment agencies – provide assistance when deals are large and buyers cannot travel to mainland China.

Second, some Chinese exporters face foreign technology sanctions or trade restrictions that prevent them from receiving US dollar payments through overseas commercial banks.

In this case, a stablecoin payment agency – not always the issuer – acts as an intermediary. It verifies the client’s identity and transfers US dollar-backed stablecoins to a licensed virtual asset exchange in Hong Kong, where they are converted into US dollars or Hong Kong dollars.