The Council on Foreign Relations (CFR) recently warned that the rise of dollar stablecoins could reshape the global financial landscape, solidifying the dollar's global dominance while posing a significant threat to China's financial sovereignty. In response to this trend, China is countering by launching programmable, strictly regulated digital currency to maintain national control over its economy.

Geopolitical Impact of Dollar Stablecoins

In its latest analysis, CFR pointed out that the recently introduced "GENIUS Act" in the U.S. will promote dollar-backed stablecoins as regulated legal tender. These stablecoins, due to a one-to-one redemption mechanism guaranteed by banks, may soon be regarded as cash equivalents, similar to deposits and commercial paper. CFR scholar Liu Zongyuan stated that the credibility and trustworthiness of stablecoins will drive their rapid adoption, with global stablecoin circulation potentially reaching $1.75 trillion within three years.

Stablecoins combine the liquidity of the dollar with the portability of blockchain technology, not only limited to the cryptocurrency sector but also likely to profoundly impact the global financial system. By circumventing traditional capital controls, dollar stablecoins can weaken countries' control over currency flows, thereby reinforcing the dollar's global financial hegemony.

Beijing's Anxiety and Response

For China, the rise of dollar stablecoins has triggered profound unease. CFR noted that stablecoins could undermine the economic and political leverage of the Chinese Communist Party, as they can bypass China's capital control measures. Export-oriented enterprises may actively adopt dollar stablecoins due to lower transaction costs, potentially even replacing the daily use of the renminbi in key markets. CFR warns that this trend could pose an "existential threat" to China's monetary sovereignty.

Chinese state media and researchers have also expressed similar concerns, warning that dollar stablecoins could further entrench U.S. financial hegemony and weaken China's years-long efforts to internationalize the renminbi. In response to this challenge, the People's Bank of China has launched the digital renminbi (e-CNY), aiming to capture market space from private stablecoins. However, the application progress of the digital renminbi has been slow, with Alipay and WeChat Pay still dominating China's digital payment market.

China's Controlled Experiment: Digital Renminbi and Hong Kong Pilot

China's response strategy reflects a tendency for strict regulation of blockchain technology. CFR analysis suggests that China will not allow stablecoins to undermine national authority but will instead strengthen control through programmable, fully traceable digital currency. Hong Kong has become China's "laboratory" for testing stablecoins. New regulations allow licensed institutions to issue fiat-backed stablecoins, including an offshore renminbi version. These stablecoins provide China with an opportunity for controlled experimentation without relaxing capital controls on the mainland.

In the future, China's renminbi stablecoins are expected to possess high programmability and traceability, aiding in anti-money laundering efforts and expanding the scope of financial regulation. This design not only addresses competition from dollar stablecoins but also further consolidates national control over the financial system.

Conclusion

The CFR report highlights the disruptive potential of dollar stablecoins in global finance and their strategic challenge to China. Dollar stablecoins may threaten China's monetary sovereignty and economic control by circumventing capital controls and reducing transaction costs. In response, China is exploring the use of blockchain technology within a national regulatory framework through the digital renminbi and pilot projects in Hong Kong to ensure the stability of its financial system and national authority.

The contest between dollar stablecoins and digital renminbi is not only about technological innovation but also a geopolitical and financial power struggle. In the future, China's response measures and its influence in the global financial system will become a focal point of international attention.

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