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China is waking up to the stablecoin challenge! Recently the United States doubled down on crypto development, announcing its intent to build a national strategic Bitcoin reserve. With US dollar-backed stablecoins spreading fast, thanks to Trump’s pro-crypto stance, Europe has already raised red flags over monetary control. Now, China is weighing its options.
A recent article by Zhang Ming, a top economist from China’s National Finance and Development Laboratory, highlights the risks of these digital assets strengthening US dollar dominance.
The Rising Influence of Dollar Stablecoins
Stablecoins pegged to the US dollar have become dominant in crypto trading and decentralized finance (DeFi). Many people in countries with weaker currencies use them as a store of value. Zhang warns that these digital assets could further solidify the US dollar’s global financial power, as they connect the real-world credit of the dollar with the virtual economy.
Expanding China’s CBDC Scope
One of Zhang’s key suggestions is expanding the use of China’s central bank digital currency (CBDC), the digital yuan. Currently, it mainly serves as a digital alternative to cash (M0) for retail transactions. However, Zhang suggests that it should also cover bank deposits (M1 and M2) and business transactions.
Although China has already conducted some business-to-business (B2B) cross-border CBDC payments, Zhang believes the digital yuan must go further to counter the rise of dollar-backed stablecoins. He did not mention mBridge, China’s existing cross-border CBDC project, which has international ambitions but also faces concerns over its involvement with sanctioned countries like Russia.
China’s Stablecoin Potential
Another option is for China to develop its own stablecoins. Zhang views this as an unexplored area, but China has already started experimenting—mainly through Hong Kong. The region has approved several crypto exchanges, launched a stablecoin regulatory sandbox, and recently saw Standard Chartered form a stablecoin venture with Animoca Brands and Hong Kong Telecom.
To strengthen the Chinese yuan’s international role, Zhang suggests leveraging major Chinese platforms like Ant Group’s Alipay and Ant International. These companies already have a strong presence in Asia and beyond. By integrating digital tokens into their global payment networks, China could boost the yuan’s influence and counterbalance the dominance of US dollar stablecoins.
US-China Tech War and the Future
The rivalry between China and the US is not just about trade but also about technology. While the US supports innovation in the crypto space, China is focusing on government-controlled digital finance. This difference in approach could shape the future of global finance. If China’s strategy succeeds, it may change how international transactions are conducted. However, widespread adoption of the digital yuan will take time, and it remains to be seen whether it can truly challenge the US dollar.
China’s crypto strategy is a clear sign of its ambitions to reshape global finance. Whether it succeeds or not, it is already influencing how nations view digital currencies and financial independence.
