Financial innovation has come full circle. The blockchain is bringing the U.S. back to the era of private money, when banks and companies could issue their own currencies. This time, instead of gold and silver coins, corporate America is eager to issue their own stablecoins.
The U.S.’s decision to embrace cryptocurrency through legislation like the GENIUS Act doesn’t just matter domestically. Washington’s move is placing pressure on countries around the world to signal their own stance on stablecoins and cryptocurrency.
In recent months, financial officials and academics within China have spoken up on the need to at least consider authorizing stablecoins, which Zhiguo He, a professor of finance at Stanford University, says is motivated by the “fear of missing out.”
And on Friday, the autonomous Chinese city of Hong Kong—which is betting on cryptocurrencies to bolster its status as a financial center—will start accepting applications for a Hong Kong-dollar backed stablecoin, potentially opening the door for a renminbi-backed token too.
With the U.S. going all-in on crypto, Beijing now faces a difficult decision: Does it match the U.S.’s risky bet on a stablecoin-centric future? Or does it play it safe, and risk missing out on cutting-edge financial technology?
A crypto-happy U.S.
Stablecoins, unlike their more volatile counterparts in the cryptocurrency space, are meant to be a bit boring. These virtual assets are pegged to the value of a reference asset, such as a fiat currency. Almost all stablecoins are pegged to the U.S. dollar, the world’s reserve currency. Users can tap stablecoins to easily transfer funds between different cryptocurrencies without needing to resort to real-world money.
Users trust stablecoin issuers to have enough liquid reserves to redeem coins for fiat currency at any time. But unlike banks, stablecoin issuers don’t have a lender of last resort to fall back on. The 2022 collapse of TerraUSD, a so-called algorithmic stablecoin, spread concerns about other cryptocurrencies, including more well-established tokens.
The potential for stablecoins to spark the cryptocurrency version of a financial panic has led governments to be wary of stablecoins. But now U.S. president Donald Trump, in his second term, wants to make the U.S. the “crypto capital of the planet.”
“Trump has done a 180 for the United States and just said, ‘deregulate, deregulate, deregulate,’” says Harvard professor and former IMF chief economist Kenneth Rogoff.
The U.S. Congress passed the GENIUS Act on July 17th, establishing the first regulatory framework for dollar-pegged stablecoins. The Act requires issuers to maintain reserves, such as in cash or U.S. Treasury bills, to back their stablecoins on at least a 1:1 basis.
China considers crypto
The U.S.’s sudden crypto-happy stance could worry other nations. Dollar-backed stablecoins will be appealing in “really poor countries where people don’t trust the currency and central bank,” says Paul Blustein, journalist and author of King Dollar: The Past and Future of the World’s Dominant Currency. But even countries with strong local currencies could face a future where “citizens prefer to transact with this type of instrument.”
The People’s Bank of China (PBOC) is now in a frustrating position. China has banned all cryptocurrency transactions since 2021, citing the risks they could post to the country’s financial system.
But China doesn’t want to find itself behind the curve—or behind the U.S.—if stablecoins and blockchain technology really are the future of finance.
Wang Yongli, former vice president of Bank of China, wrote to WeChat in June that it “would be a strategic risk if cross-border yuan payment is not as efficient as dollar stablecoins.” Yongli recommended a “proactive response from other countries, particularly China” to U.S. legislation, according to the Pekinology newsletter.
PBOC governor Pan Gongsheng similarly noted the rising use of stablecoins for cross-border payments at the 2025 Lujiazui Forum in Shanghai on June 18.
Days later, the Securities Times, a newspaper owned by state media outlet People’s Daily, wrote that industry insiders “generally believe that, as an emerging payment tool, the unique advantages and potential risks of stablecoins cannot be ignored, and that the development of [renminbi-pegged] stablecoins should be sooner rather than later.”
The South China Morning Post reported on July 14 that China was exploring the feasibility of allowing the launch of stablecoins. Two local officials told the newspaper that state-owned entities including the securities firm Guotai Haitong and data infrastructure firm Shanghai Data Group were looking into a trial run of renminbi-pegged tokens.
“It’s not the fact that the U.S. is going into crypto, per se, that matters,” Evan Auyang, group president of Hong Kong-based blockchain technology company Animoca Brands, says. “It’s really what started as a result of this change…Stablecoins became institutional” after gaining legitimacy from the U.S. (Animoca Brands intends to apply for a license to issue stablecoins in Hong Kong.)
De-dollarization
There’s a geopolitical element to the stablecoin conversation. If adoption of U.S. dollar stablecoins grows, issuers will need to hold more dollars and dollar-based assets to back the peg. Tether, which issues the world’s largest stablecoin, was already the world’s seventh largest purchaser of U.S. debt in 2024.
After chipping away at the dollar’s global dominance for decades, China does not want to give the U.S. an opportunity to regain ground.
“They’re very concerned about the U.S. exercising power, expanding the use of the dollar,” says Rogoff.
China has tried to promote greater use of the renminbi for cross-border trade, with limited success. Trade with isolated countries like Russia and Iran may be conducted in the renminbi, but most countries in the world still prefer using the U.S. dollar. The popularity of dollar stablecoins could “smother” Beijing’s efforts to develop its own financial networks, Rogoff says.
Trump’s trade war has spurred talks of “de-dollarization,” or reducing reliance on the U.S. dollar, due to concerns about the future of the U.S. economy and fears of dollar weaponization. Even Trump himself is worried about challengers to the dollar, threatening massive tariffs against the BRICS bloc if it considered creating an alternative currency.
U.S. Treasury Secretary Scott Bessent has said that stablecoins can help keep the U.S. dollar as the dominant reserve currency.
Some Chinese officials agree with Bessent: former vice minister of finance Zhu Guangyao argued in June that “the strategic purpose behind the United States’ promotion of stablecoins—closely tied to U.S. dollar liquidity—is to preserve dollar supremacy,” as translated by the East is Read newsletter,
Can China launch a stablecoin?
But even if Beijing is open to launching a stablecoin, it must overcome another hurdle: its closed capital account, which means officials can’t authorize a Chinese yuan renminbi (CNY)-pegged stablecoin.
There are “still a lot of concerns over capital flight issues” that make the liberalization of China’s capital account unlikely, Auyang says.
China could authorize a stablecoin pegged to the offshore renminbi (CNH). And since over 70% of offshore renminbi payments are processed in Hong Kong, Huang Yiping, an advisor for the PBOC, suggested using the city as a testing ground for China’s stablecoin launch. Chinese tech giant JD.com reportedly proposed a similar scheme in its discussions with the PBOC.
Hong Kong’s Stablecoin Ordinance, due to go into effect on August 1st, already establishes a legal framework for leveraging the city’s offshore renminbi pool, if the PBOC chooses to go in that direction and provide sufficient liquidity for offshore renminbi-pegged stablecoin issuers.
Although the law requires issuers to hold reserves in their stablecoin’s reference currency, since the Hong Kong dollar itself is pegged to the U.S. dollar, HKD-pegged stablecoin issuers can hold U.S. dollar reserves.
“Hong Kong is pegging to the USD. So, in some sense, they are basically helping the U.S.,” He, from Stanford, explained. “This is perhaps why Beijing [could say], when you do the HKD [stablecoin], I want you to do the CNH as well.”
‘Rein in the euphoria’
Currency experts are worried about how stablecoins could end up posing a threat to the economy—whether in the U.S. or in China.
Blustein points to the risk of “currency substitution.” If the appeal of stablecoins outweighs the appeal of the local currency, it “screws up the central bank’s ability to control the economy,” he argues, as everyone is engaging in transactions in an instrument outside the bank’s control.
And without a central bank or lender of last resort, stablecoins are vulnerable to runs—users rushing to redeem their tokens for fiat currency all at once. The possibility of a stablecoin crisis is “very parallel to the U.S.’s free banking era in the 1800s,” says Rogoff.
“The risk of a financial crisis is high,” he says.
Blustein, for his part, is less worried about stablecoins messing things up—in part because they make up “a tiny part of international payments.”
“Stablecoins cannot possibly buy that many short-term treasuries” to compete with central banks and multinational companies, he suggests.
Another person expressing some skepticism about stablecoins? Eddie Yue, the head of the Hong Kong Monetary Authority and the city’s de facto central banker.
In a press conference last week, Yue told the public to “rein in the euphoria” over stablecoins, pointing to “overly idealistic” discussions on how they might “disrupt the mainstream financial system.”
Politics8 years ago