China Fears USD Stablecoins Could Undermine Financial Sovereignty

US GENIUS Act Transforms Global Digital Currency Landscape

The U.S. GENIUS Act has formalized a transformation by creating a framework for regulated U.S. banks to issue dollar-backed stablecoins. This legislation removes the biggest obstacle to stablecoin development by ensuring fully credible pegs through bank guarantees.

Estimates forecast that as much as $1.75 trillion in new dollar-backed stablecoins could enter circulation over the next three years. This massive expansion will reshape the global monetary landscape and challenge every country dependent on dollar-based trade settlements.

Why China Views Dollar Stablecoins as Existential Threat

From China's perspective, dollar stablecoins are not just economically disruptive, but an outright political threat. The Chinese Communist Party's political power relies heavily on controlling money flow and capital allocation through financial repression.

Capital Control Circumvention Concerns

Bank-issued dollar stablecoins present a powerful use case as programmable digital money that combines dollar liquidity with blockchain security and anonymity. Unlike conventional money, stablecoins largely exist beyond capital control reach, circulating freely between digital wallets worldwide with relative anonymity.

If the government can no longer effectively police access to foreign currency, then capital will steadily leak out, and the whole system of assuring the loyalty of China's elites to the party by selectively granting them access to cheap capital will break down.

Business Community Adoption Risk

China's export-oriented businesses would likely embrace bank-issued dollar stablecoins due to lower international transaction costs. After gaining business traction, dollar stablecoins could begin displacing the renminbi in everyday transactions, similar to how printed U.S. dollars already circulate widely in Latin America.

Chinese Officials Acknowledge Stablecoin Threat

Chinese researchers and state media have recognized this risk. A team of researchers from JD Group argued that U.S. government support for bank-issued stablecoins could spur rapid usage increases, strengthening the dollar's dominant position in global trade.

Even Chinese state media, China Daily, has warned that dollar stablecoin usage "is expected to increase the demand for U.S. treasuries, lower interest rates and secure the dollar's status as the world's reserve currency."

China's Crypto Policy Evolution

Early Dominance to Complete Ban

China once dominated crypto trading and mining. In 2013, Chinese exchanges led global trading volumes and bitcoin prices correlated strongly with Chinese news. However, authorities grew skeptical of industry benefits versus risks.

The regulatory crackdown progressed systematically:

• December 2013: Banned financial institutions from providing bitcoin services

• September 2017: Declared initial coin offerings illegal

• September 2021: Banned all cryptocurrency-related financial activities

By 2021, China had banned most of the crypto industry from operating in the country. However, individuals retained cryptocurrency ownership rights as virtual property under court rulings from major cities.

Blockchain Without Crypto Strategy

China's leadership embraces blockchain technology while condemning cryptocurrency. President Xi Jinping described blockchain as a core technology for achieving indigenous innovation and called for increased investment to accelerate its development.

Beijing favors tightly controlled, permissioned infrastructure operated by vetted companies under centralized oversight. China leads the world in granted blockchain patents, accounting for roughly 68 percent of the global total.

China's Digital Currency Response Strategy

E-CNY Struggles and Limitations

China developed the world's first central bank digital currency to front-run cryptocurrency threats. The digital renminbi (e-CNY) launched publicly in April 2021 but faces adoption challenges.

Despite state-led trials across dozens of cities and heavy institutional support, the e-CNY has struggled to gain everyday relevance with consumers and businesses. Financial institutions show little enthusiasm due to lack of fee-based revenue generation.

Hong Kong Stablecoin Experimentation

In May 2025, Hong Kong's Legislative Council passed a landmark Stablecoins Bill, allowing licensed entities to issue fiat-backed stablecoins, including those pegged to the Hong Kong dollar and the offshore renminbi.

Hong Kong serves as China's financial laboratory, being legally distinct yet politically aligned. This framework allows authorities to explore tokenized renminbi circulation offshore while maintaining mainland capital controls.

Future of Chinese State-Controlled Stablecoins

Surveillance and Control Features

A renminbi-based stablecoin would likely be fully traceable and utilize China's digital identification system. This would link every transaction with real names and facial recognition profiles, allowing authorities to view complete transaction histories.

The programmability of stablecoins could enable Chinese authorities to embed usage restrictions directly into currency code. Features like expiration dates, sector-specific spending limits, and geographic limitations could serve government policy aims.

Growing Official Support

Momentum grows among scholars and companies advocating for Beijing to authorize renminbi-backed stablecoins. China's e-commerce giants JD.com and Alibaba both plan to issue stablecoins backed by Hong Kong dollars.

Wang Yongli, former vice president of Bank of China, warned that China must keep pace with dollar stablecoins in payment efficiency and clearing costs to maintain renminbi internationalization progress.

China's Programmable Sovereignty Vision

China is not content to simply follow the United States down the path of permissionless, decentralized cryptocurrencies with anonymized transactions. Instead, it appears poised to marshal resources behind permissioned digital money designed to reinforce state control.

This emerging monetary architecture encodes authority rather than dismantling it. Where bitcoin seeks to obscure identity and bypass oversight, China's vision hardwires identity and centralizes control.

In this framework, stablecoins become platforms for programmable sovereignty both domestically and internationally. The likely path for Chinese stablecoins prioritizes control first, innovation second, helping automate and extend party authority rather than diluting it.

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