China Fears USD Stablecoins' Impact on Yuan Control
The Council on Foreign Relations (CFR) has issued a warning: the growing adoption of USD stablecoins could reshape global finance and weaken Beijing's control over its currency. China is reportedly considering a response, focusing on a tightly controlled digital currency to reinforce state authority.
USD Stablecoins: A Challenge to China's Monetary Sovereignty
The CFR, a prominent US think tank, highlights the geopolitical implications of stablecoins. According to a recent analysis by CFR scholar Zongyuan Zoe Liu, the US's GENIUS Act has transformed dollar-backed tokens into credible, regulated forms of digital money.
The backing by banks, offering one-to-one redemption, positions stablecoins alongside traditional assets like deposits and commercial paper.
The CFR anticipates substantial growth, projecting a potential circulation of $1.75 trillion in stablecoins within three years. This expansion could strengthen the dollar's global influence, extending beyond the crypto market.
Beijing's Concerns About Capital Flight
For Beijing, the rise of USD stablecoins presents a serious challenge. These tokens combine the liquidity of the dollar with blockchain's portability, effectively bypassing China's capital controls. This undermines a key element of the Communist Party's economic and political power.
Export-oriented companies might increasingly use stablecoins to reduce transaction costs. Dollar-denominated tokens could even gain daily use, potentially displacing the renminbi in key markets. The CFR describes this risk as “existential” for China's monetary sovereignty.
Chinese researchers share this apprehension. State media outlets have cautioned that dollar stablecoins could solidify US financial dominance, jeopardizing Beijing's efforts to promote renminbi-based alternatives.
China's Response: Controlled Digital Currency
China has historically preferred harnessing blockchain technology under strict state supervision. The People's Bank of China launched the e-CNY to preempt private tokens. However, adoption has been slow, with Alipay and WeChat Pay continuing to dominate digital payments.
Hong Kong has emerged as a testing ground. New regulations allow licensed issuers to launch fiat-backed stablecoins, including offshore renminbi versions. These tokens enable controlled experimentation without relaxing mainland capital restrictions.
Future renminbi stablecoins are expected to be programmable and fully traceable, potentially enhancing anti-money laundering efforts and expanding financial surveillance. The CFR concludes that Beijing aims to use stablecoins to reinforce state control, not diminish it.