- China has asked banks to limit their holdings of U.S. Treasuries.
- The yuan reached a two-year high against the U.S. dollar this week.
- China’s latest policy has increased uncertainty around private yuan-linked stablecoins.
According to a U.S. Treasuries report, the Chinese government has instructed banks within its borders to limit their U.S. Treasury holdings, resulting in a surge in the yuan, which recently achieved its strongest value since May 2023.
China Moves Further Away From the U.S. Dollar
Typically, shifting away from U.S. sovereign debt reinforces a broader global trend of diversification away from the dollar. According to analysts, moving away from the U.S. dollar could accelerate the repatriation of capital into Chinese assets and strengthen the yuan.
Bloomberg data show that the decision to limit U.S. Treasury holdings caused onshore and offshore yuan to reach their strongest levels in over two years, adding momentum for the Chinese currency. It is worth noting that the yuan has been the third-best-performing currency in Asia since the end of September 2025, with a gain of approximately 3%.
It is worth noting that the uncertainty surrounding the U.S. fiscal and trade policies under President Donald Trump has played a significant role in weakening the dollar. In contrast, the strengthening yuan is a product of the People’s Bank of China’s higher tolerance for a stronger local currency and a surge in capital inflow.
China Has Tightened Stance on Yuan-linked Stablecoins
In the meantime, it is worth noting that China has tightened its stance on yuan-linked stablecoins, moving from a general domestic cryptocurrency ban to an explicit, legally binding prohibition of unauthorized offshore stablecoin issuance as of February 6, 2026.
The government used the latest policy shift to create a monopoly for the Digital Yuan (e-CNY), positioning it as the sole legitimate digital representation of its local currency while treating all private alternatives as illegal financial activities. Notably, the policy from mainland China is increasingly putting Hong Kong under pressure to align, leaving a narrow and uncertain path for any private yuan-linked digital asset to operate legally.
Related: China Pays Interest on Digital Yuan, Coinbase CEO Warns U.S. Is Falling Behind
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