EU-China Trade: Facilitating Bilateral Trade Through a Joint Fiat-Backed Stablecoin

This EIAS Briefing Paper explores the implementation of a joint, fiat-backed stablecoin as a tool for facilitating EU-China Trade, which reached a valuation of approximately 762 billion USD in 2024. Despite the high volume of Bank-to-Bank (B2B) transactions, bilateral trade remains tethered to inefficient financial infrastructure characterised by high foreign exchange (FX) markups, third-party reliance, and settlement latencies. These frictions impose systemic costs and lock up billions in working capital. This paper proposes a private fully-collateralised stablecoin pegged to a 50/50 basket of the Euro (EUR) and Offshore Renminbi (CNH). Blockchain architecture and smart contract automation offers the potential of near-instantaneous completely transparent settlement and reductions in transaction costs to a fraction of traditional transfers.

The paper identifies Luxembourg as the optimal European domicile due to its specialised regulatory environment under the Markets in Crypto-Asset (MiCA) framework and its status as the Eurozone’s premier CNH clearing hub. Furthermore, it outlines a hybrid governance structure to balance agility and oversight, addressing the political and economic sensitivities of both the European Union and China. While recognising challenges such as ‘volatility drag’ against single currencies and concerns regarding sovereignty of monetary policy, this briefing paper argues that a joint stablecoin is the most pragmatic vehicle to de-dollarise and lubricate the continued growth of one of the world’s largest economic partnerships.

Author: Reuben Gilhooley, EIAS Junior Researcher

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