The Council on Foreign Relations warns that USD stablecoins could transform global finance and diminish Beijing’s influence.
China is gearing up to respond with a closely monitored digital currency aimed at bolstering, rather than undermining, state authority.
USD Stablecoins and US Policy
The Council on Foreign Relations (CFR), a leading US think tank focused on diplomacy and international affairs, has expressed concerns regarding the geopolitics of stablecoins. In a recent article, CFR scholar Zongyuan Zoe Liu posits that Washington’s new GENIUS Act is transforming dollar-backed tokens into credible, regulated currency.
With banks ensuring a one-to-one redemption, stablecoins may soon be considered cash equivalents, alongside deposits and commercial paper.
CFT highlights that this newfound credibility could lead to explosive growth. Projections indicate that up to $1.75 trillion in stablecoins may be circulated within three years. Furthermore, the implications would stretch beyond crypto, reinforcing the dollar’s standing in global markets.
Beijing’s Growing Anxiety
This development is significantly concerning for Beijing. Stablecoins offer the liquidity of dollars combined with the portability of blockchain, circumventing traditional capital controls, hence undermining a crucial economic and political instrument for the Communist Party.
Export-driven businesses might eagerly adopt stablecoins to reduce transaction expenses. Importantly, dollar tokens could see daily use, potentially surpassing the renminbi in vital markets. CFR describes this scenario as an “existential” threat to Chinese monetary sovereignty.
Chinese researchers share these apprehensions. Even state media have cautioned that dollar stablecoins could solidify US financial dominance, undermining years of Beijing’s efforts to create renminbi-centric alternatives.
Controlled Experiments Ahead
China’s track record indicates a preference for utilizing blockchain under stringent state control. The central bank introduced the e-CNY to counter private tokens; however, adoption has been slow. Alipay and WeChat Pay continue to dominate the digital payment landscape in China.
Hong Kong has emerged as a testing ground. New regulations allow licensed issuers to launch fiat-backed stablecoins, including versions of the offshore renminbi. These tokens facilitate controlled experimentation while maintaining mainland capital restrictions.
Upcoming renminbi stablecoins are anticipated to be programmable and completely traceable, potentially aiding in anti-money laundering efforts and enhancing financial surveillance. CFR concludes that Beijing intends to leverage stablecoins to entrench state control rather than diminish it.
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