China’s Crypto FOMO Peaks as Dollar-Stablecoin Dominance Goes Parabolic
Beijing watches from the sidelines as USD-pegged digital assets eat its monetary lunch.
### The Stablecoin Siege
Tether and Circle's war chests swell while PBOC officials scramble to regulate what they can't control. Every 24 hours, another $200M in USDC gets minted—most of it flowing through Hong Kong's backdoor markets.
### The Yuan's Digital Waterloo
China's CBDC project looks increasingly like a walled garden as dollar stablecoins become the de facto reserve currency of DeFi. Retail traders VPN-ing into offshore exchanges know the score: 97% of all crypto pairs now trade against USDT.
### The Irony That Stings
A nation that banned Bitcoin now suffers the ultimate capitalist indignity—watching its citizens vote with their wallets for dollar-denominated assets. Meanwhile, state banks keep pretending their 0.01% yield savings accounts are competitive.
No direct competition
That’s precisely where China’s anxiety lies. “For China, which is promoting the global use of the yuan, proactively regulating stablecoins and therefore facilitating the internationalisation of the yuan might be a better solution,” the Securities Times piece said.
The article adds to a flurry of voices in recent months urging Beijing to act, especially as trade tensions with Washington continue to escalate.
Liu Xiaochun, a deputy director at the Shanghai Finance Institute, told the outlet that yuan-based stablecoins could help China strike a balance between innovation and financial security. But he reportedly emphasized they shouldn’t try to “compete directly” with dollar-backed versions. Instead, the focus should be on “supporting emerging economies” and expanding yuan use in a more organic way.
Hong Kong, meanwhile, has already moved ahead. It’s set to launch a licensing regime for stablecoin issuers in August. But on the mainland, crypto trading remains banned and regulators haven’t shown much appetite for changing that anytime soon.
The U.S., by contrast, is pushing forward. Last week, the Senate passed the GENIUS Act, a bill that sets the ground rules for stablecoin issuance, requiring reserves and compliance with anti-money laundering laws. The vote passed with bipartisan support, though some Democrats, including Senator Elizabeth Warren, warned the bill was too soft on potential conflicts of interest, particularly those tied to Trump-affiliated crypto ventures.
Growing concerns
Still, industry voices cheered the move. Supporting the GENIUS Act, Christian Catalini, founder of MIT’s Cryptoeconomics Lab, told ABC News it “opens the floodgates” for competition and innovation, with consumers seeing real benefits.
Analysts at China International Capital Corporation didn’t miss the implications. In a note this week, they pointed out that most stablecoins are still pegged to the U.S. dollar. That alone helps reinforce the dollar’s status, they wrote. It reduces costs and makes greenback transactions easier, which, in turn, encourages more international use of U.S. currency.
The growing popularity of these digital dollars could even increase global demand for U.S. Treasuries, the CICC note said. But they also flagged potential downsides: rising geopolitical tensions and concerns over U.S. debt levels may eventually undercut confidence in the dollar. That could create an opening for other digital currencies, including, perhaps, a yuan-backed stablecoin.
Zhou Xiaochuan, former head of China’s central bank, echoed that concern last week at the Lujiazui Forum in Shanghai. The rise of stablecoins, he warned, could accelerate “dollarization” in parts of the global economy.
Multi-polar currency
As of press time, stablecoins represent a $261 billion market, according to CoinGecko. Of that, about 97% are dollar-pegged, with more than $1.4 billion backed by U.S. Treasuries.
Zhu Taihui, a senior fellow at the National Institution for Finance and Development under the Chinese Academy of Social Sciences, told the SCMP that offshore yuan-based stablecoins should be issued in Hong Kong “as soon as possible” and eventually expanded into China’s free trade zones.
Meanwhile, China is ramping up efforts on a parallel front: the digital yuan, or e-CNY. At the same Lujiazui Forum, the central bank’s current governor Pan Gongsheng pledged to establish an international operation center for the currency in Shanghai, reiteratting Beijing’s vision of a “multi-polar” global currency system that isn’t overly reliant on the dollar.
“Developing a multi-polar international monetary system will help strengthen policy constraints on sovereign currency countries, enhance the resilience of the system, and better safeguard global financial stability.”
Pan Gongsheng
But getting the yuan to compete globally still faces obstacles. As Morgan Stanley analysts noted in a research note, any meaningful rise of yuan-backed stablecoins will require easing capital controls and broader acceptance of the Chinese currency as their development “has been constrained by Beijing’s ban on domestic use, lingering capital controls, and insufficient global recognition given the dominance of USD-pegged stablecoins.”
