China is waking up to the stablecoin challenge!

Recently the United States doubled down on crypto development, announcing its intent to build a national strategic Bitcoin reserve.

Recently, the United States has doubled down on its cryptocurrency strategy.

The country is now planning to build a national strategic Bitcoin reserve, aiming to diversify the government’s treasury assets.

This move comes amid the rapid spread of US dollar-backed stablecoins, which has raised concerns in Europe over diminished monetary control.

Now, a top economist in China, Zhang Ming from the National Finance and Development Laboratory, has highlighted the risks of these digital assets strengthening the US dollar’s dominance.

What Is the Rising Influence of Dollar Stablecoins?

Stablecoins pegged to the US dollar are becoming increasingly dominant in cryptocurrency trading and decentralized finance (DeFi).

Many people in countries with weaker currencies are also using them as a store of value.

Zhang notes that these digital assets could further solidify the US dollar’s standing as the world’s leading currency. They are effectively merging the real-world credit of the dollar with the virtual economy.

But how can China counter this trend?

What Is China’s Strategy to Count Stablecoins?

One suggestion by Zhang is to expand the use of China’s central bank digital currency (CBDC), the digital yuan.

Currently, it mainly serves as a digital alternative to cash (M0) for retail transactions. However, Zhang suggests that it should also cover bank deposits (M1 and M2) and business transactions.

Although China has already conducted some business-to-business (B2B) cross-border CBDC payments, Zhang believes it needs to go further to counter the rise of dollar-backed stablecoins. He did not mention mBridge, China’s existing cross-border CBDC project, which has international ambitions but also faces concerns over its involvement with sanctioned countries like Russia.

Another option is for China to develop its own stablecoins. Zhang views this as an unexplored area.

But China has already started experimenting, mainly through Hong Kong. The region has recently approved several crypto exchanges and launched a stablecoin regulatory sandbox.

Earlier this month, Standard Chartered is also planning to start a new stablecoin venture with Animoca Brands and Hong Kong Telecom.

To strengthen the yuan’s international role, Zhang suggests leveraging major Chinese platforms like Ant Group's Alipay and Ant International.

These companies already have a strong presence in Asia and beyond. By integrating digital tokens into their global payment networks, China could boost the yuan’s influence and balance out the dollar stablecoins.

What Is the US-China Tech War and the Future?

The competitive narrative between China and the US spans not just trade but also technology.

While the US supports innovation in the crypto space, China is focusing on a government-controlled model of digital finance. This difference in approach could shape the future of global finance.

If China’s strategy succeeds, it may change how large international transactions are conducted. But achieving widespread adoption of the digital yuan will take time, and it remains to be seen whether it can truly challenge the US dollar.