Why China Is Scared of Dollar Stablecoins and How It Will Respond
Controlling access to money is no longer the exclusive privilege of the sovereign. Instead, access to money is increasingly governed through code, online networks, and protocols. The U.S. GENIUS Act—short for Guiding and Establishing National Innovation for U.S. Stablecoins—has formalized this transformation by creating a framework for regulated U.S. banks to issue dollar-backed stablecoins. Stablecoins have a unique role in the cryptocurrency ecosystem. Unlike most cryptocurrencies which can swing widely in price, stablecoins are designed to maintain a stable value by being pegged to nondigital assets—such as traditional fiat currencies like the U.S. dollar or euro—making them a less volatile medium of exchange.
The GENIUS Act thereby removes the biggest obstacle holding back the development of stablecoins: the lack of a fully credible peg. With banks guaranteeing 1:1 redemptions of stablecoins for dollars, these tokens become functionally equivalent to the other bank assets that have already been embedded into the global financial system as cash equivalents in accounting standards, such as time deposits or commercial paper.
Some estimates forecast that as much as $1.75 trillion in new dollar-backed stablecoins could enter circulation over the next three years. The consequences of that expansion will reverberate far beyond the United States’ borders—reshaping the global monetary landscape and challenging the strategic calculations of every country that relies on the dollar to settle international trade. Chief among them is China.
China’s leadership views these developments with considerable apprehension, and for good reason. Bank-issued dollar stablecoins present a powerful use case as an infinitely divisible, programmable form of digital money that combines the dollar’s core strength—global liquidity—with the security and anonymity of blockchain-based ownership, akin to holding physical gold. Unlike conventional forms of money, stablecoins are largely beyond the reach of capital controls. They circulate freely between digital wallets whose owners can be located anywhere in the world and, with relatively little effort, can remain anonymous. The result is a new channel for transacting in dollars that the Chinese state cannot fully monitor, throttle, or shut down.
From China’s perspective, dollar stablecoins are not just economically disruptive, but an outright political threat. One of the pillars of Chinese Communist Party’s political power is its ability to control the flow of money and preferentially allocate capital using China’s system of financial repression. The architecture of this system relies on strict capital controls to hold the capital of the Chinese people captive and funnel it into state-owned banks. 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.
China’s export-oriented business community would likely be receptive to using bank-issued dollar stablecoins because of the potential to lower international transaction costs. It is conceivable that after gaining traction among businesses, dollar stablecoins could begin to displace the renminbi in more everyday transactions—just as printed U.S. dollars already circulate widely in parts of Latin America. While the loss of monetary sovereignty in China could seem like a distant threat, it is nonetheless an existential one to the party.
Chinese researchers and state media have acknowledged this risk. A team of researchers from JD Group argued that U.S. government support for bank-issued stablecoins could spur a rapid increase in their usage, strengthening the dollar’s dominant position in global trade. Even Chinese state media, China Daily, has warned that the use of dollar stablecoins “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.” For Beijing, the rapid advancement of dollar stablecoins offers an immediate setback. It somewhat diminishes the hard-won progress in recent years toward building renminbi-based financial infrastructure that could serve as an alternative to the dollar-based infrastructure controlled by Washington. In a world where dollar stablecoins circulate globally, Beijing risks losing not just monetary ground, but also political leverage.
China’s Evolving Policy on Crypto
China once dominated crypto trading and mining. In 2013, four years after the creation of bitcoin, Chinese exchanges led the world in trading volumes and the price of bitcoin was strongly correlated [PDF] to news coming out of China. But that early crypto boom was short-lived, as Chinese authorities grew skeptical that the industry’s benefits were worth the risks. In December 2013, Chinese regulators published the Notice on Preventing Bitcoin Risks, banning financial institutions and payment processors from providing bitcoin-related services but stopping short of prohibiting individuals’ use and ownership of bitcoin.
In September 2017, seven Chinese regulatory agencies, including the People’s Bank of China, jointly issued the Announcement on Preventing Financial Risks from Initial Coin Offerings, declaring the public sale of newly created and highly speculative cryptocurrencies to be illegal. The day after the announcement, twenty-four initial coin offering platforms were shut down and several more secondary market platforms ceased operations. The closure later that year of BTCC, China’s oldest bitcoin exchange, marked the end of China’s time at the center of the crypto world.
In the years that followed, Chinese authorities continued to tighten control over the crypto industry, steadily restricting permissible activities. In September 2021, regulators declared all cryptocurrency-related financial activities illegal—including trading, payments, token issuance, fundraising, and derivatives. The ban even extended to foreign crypto exchanges serving Chinese residents. Crypto mining, the energy-intensive process that supports cryptocurrency networks, was singled out by the National Development and Reform Commission as an industry to receive no new project approvals and designated for ultimate elimination.
The net effect of those crackdowns was that by 2021, China had banned most of the crypto industry from operating in the country. However, individuals could still own cryptocurrency as long as they did not engage in any banned activities. In fact, several court rulings dating back to 2018 from Shenzhen, Hangzhou, and Shanghai clarified that Chinese citizens have a legal right to own cryptocurrencies as virtual property. Similarly, while cracking down on cryptocurrency specifically, Chinese authorities never actually restricted the general use of blockchain technology for other purposes.
Somewhat paradoxically, China’s top leadership has embraced blockchain technology, declaring it a national strategic priority while simultaneously condemning cryptocurrency, its most prominent use case. At a 2019 Politburo study session on blockchain, President Xi Jinping described it as a core technology for achieving indigenous innovation and called for increased investment to accelerate its development. China’s Fourteenth Five-Year Plan (2021–25) likewise identified blockchain as one of seven foundational industries for the digital economy. The government has actively promoted the development of distributed ledger technologies and potential financial applications such as smart contracts.
But Beijing’s vision diverges sharply from the open, decentralized architecture of cryptocurrencies like Ethereum and bitcoin. Instead, it favors a tightly controlled, permissioned infrastructure operated by a consortium of vetted companies under centralized oversight—in short, blockchain without crypto.
China’s model explicitly rejects the principle of decentralization in favor of closed systems developed by state-aligned tech giants like Ant Group (a subsidiary of Alibaba) and Tencent (owner of WeChat). These firms have poured significant resources into realizing Beijing’s strategic goals. According to Coinclub’s 2023 Blockchain Patent Report, China leads the world in the number of granted blockchain patents, accounting for roughly 68 percent of the global total. Ant Group, Tencent, and Shenzhen-based insurer Ping An Group rank among the top global filers, reflecting the state-led push to shape global blockchain infrastructure designed on China’s terms.
State-backed initiatives such as the Blockchain-based Service Network and Spark Chain Network [PDF], along with enterprise platforms like AntChain and Tencent’s TrustSQL, exemplify this approach. These systems allow preapproved participants to operate within blockchain environments that retain transparency and traceability while remaining fully subject to regulatory oversight. All blockchain-based services in China fall under the purview of the Cyberspace Administration of China, which oversees all internet activity in China and enforces regulations and censorship.
China’s Likely Path Forward: State-Controlled Stablecoins
China’s initial response to the perceived threat of cryptocurrency was to try to front-run it by developing the world’s first central bank digital currency: the digital renminbi, or e-CNY. In 2021, the People’s Bank of China published its White Paper on Progress of Research and Development of e-CNY in China, which underscored [PDF] the risks posed by private stablecoins and the need for the central bank to proactively occupy the space with its own digital currency. Initial testing of the e-CNY began in 2020, and since April 2021, it has been widely available to the public.
Yet adoption of the e-CNY remains slow and underwhelming. As a Chinese financial news site reported, since the launch of the e-CNY pilot in 2019, it “has fallen into the embarrassing predicament where no one uses it unless there is a promotion.” 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. Mu Changchun, director of China’s Central Bank Digital Currency Research Institute, has repeatedly said the e-CNY is not intended to replace or compete with other payment services. Regardless of its intended purpose, in practice, the e-CNY has largely been eclipsed by the entrenched dominance of QR-code-based platforms like WeChat Pay and Alipay, which are already deeply integrated into China’s digital and consumer ecosystems.
Financial institutions in China have not enthusiastically supported the e-CNY pilot. All six major state-owned commercial banks offer e-CNY–compatible digital wallets, yet they have little incentive to push adoption. Unlike Alipay and WeChat Pay, both of which link to checking accounts and credit cards and generate revenue through fees and data, e-CNY transactions generate no fee-based revenue for banks. An S&P report concluded [PDF] that widespread adoption of the e-CNY could actually erode bank profitability. As a result, many banks and fintech platforms treat the e-CNY more as a compliance obligation than a business opportunity. With limited uptake, weak incentives, and no compelling value proposition, the e-CNY’s future remains uncertain.
That uncertainty has quietly opened the door again to stablecoin experimentation within China’s jurisdiction, particularly in Hong Kong. In May 2025, Hong Kong’s Legislative Council passed a landmark Stablecoins Bill [PDF], allowing licensed entities to issue fiat-backed stablecoins, including those pegged to the Hong Kong dollar (itself pegged to the U.S. dollar) and the offshore renminbi (CNH). Oversight, licensing, and audits fall under the authority of the Hong Kong Monetary Authority (HKMA). The new regulatory regime is a follow-up to the success of HKMA’s stablecoin issuer sandbox created in 2024.
Hong Kong serves as China’s financial laboratory: it is legally distinct yet politically aligned, globally integrated yet institutionally loyal. Although mainland regulators have not publicly endorsed the new framework, it is implausible that such a move could occur without Beijing’s approval. By permitting CNH-based stablecoin trials in Hong Kong, Chinese authorities can explore tokenized renminbi circulation offshore while keeping mainland capital controls intact. For Beijing, the goal of this experiment is to ultimately turn blockchain-enabled finance into an instrument for precision control and supervision by authorities.
A renminbi-based stablecoin is likely to be fully traceable and utilize China’s digital identification system to link every transaction with a real name and facial recognition profile. This would allow the authorities to view entire transaction histories of individuals and firms. Though useful to prevent money laundering, this would also be a powerful tool for real-time financial surveillance.
Even though these features align with anti–money laundering objectives, they also create the potential for a surveillance state that is far more pervasive than what is possible today. At best, this allows more precise macroeconomic policy implementation; at worst, it becomes a tool for enforcing political discipline or restricting undesirable forms of economic activity. For Beijing, the promise of blockchain is not its decentralization but rather its potential to refine and extend state control through code. In this model, money is not just a medium of exchange; it becomes a direct instrument of policy and social governance.
The programmability of stablecoins could allow Chinese authorities to embed usage restrictions directly into the currency itself. Features tested in the e-CNY pilot, such as expiration dates, sector-specific spending limits, and geographic limitations, could be reconfigured to serve the government’s policy aims. Importantly, a renminbi stablecoin could be coded to be only selectively exchangeable. Code-based geofencing could restrict its circulation to licensed offshore areas such as Hong Kong and other money centers. Transaction limits, user eligibility, and cross-border flow controls could all be hardcoded into the blockchain, preserving the integrity of China’s capital controls even as the stablecoin circulates beyond its borders. Unlike e-CNY, which remains confined to domestic use despite expressed ambitions for offshore applications, an offshore stablecoin pegged to CNH could expand China’s global financial reach without opening up the country’s capital account and exposing to the risk of capital outflows.
The passage of the GENIUS Act is expected to lead to rapid growth in the circulation of bank-issued dollar stablecoins. To the Chinese government, this represents at least as grave a monetary threat as the one it faced when it launched the e-CNY. Momentum is growing among scholars and companies advocating that Beijing should authorize a renminbi-backed stablecoin to proactively counter the sway of dollar stablecoins. China’s e-commerce giants JD.com and Alibaba both plan to issue stablecoins backed by Hong Kong dollars. Wang Yongli, former deputy governor of the PBoC, has said China should consider launching an offshore renminbi stablecoin to recapture its former lead in crypto assets and digital payments. He warned that if China fails to keep up with the dollar stablecoins in terms of payment efficiency and clearing costs then the progress toward international use of the renminbi could be limited. In a telling sign, none of those proposals have been silenced by the government. That suggests a growing official tolerance—if not yet full endorsement—for renminbi stablecoins.
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 its considerable resources behind a new category of permissioned digital money—one designed to reinforce, not relax, state control. This emerging monetary architecture does not dismantle authority; it encodes it. Where bitcoin seeks to obscure identity and bypass central oversight, China’s vision is to hardwire identity and centralize control. Surveillance, compliance, and state oversight are not afterthoughts—they are embedded into the very fabric of the code. In doing so, Beijing aims to reassert financial sovereignty while ensuring that innovation does not come at the cost of control.
In this framework, stablecoins are not a gateway to financial freedom—they are a platform for programmable sovereignty, both at home and abroad. The likely path for Chinese stablecoins is clear: control first, innovation second. If sanctioned by the party, they will not dilute its authority; they will help automate and extend it.
Note: A shorter version of this article appeared in Foreign Policy.
