China is accelerating plans to create systems that can monitor dollar-backed stablecoins, a development that has sparked concerns among Beijing’s leadership. The move comes as US banks and financial institutions are exploring the creation of regulated dollar-backed stablecoins.
Dollar-backed stablecoins are digital tokens designed to trade near their $1 par value due to being backed by real dollars or safe assets held in reserve. These tokens can move instantly across the internet, bypassing traditional banking systems and know-your-customer rules. Many operate on decentralized blockchains where transactions are recorded on public ledgers maintained by distributed computer networks.
China views dollar-backed stablecoins as a threat to its control over money creation, movement, and holding. The country’s leadership fears that these tokens could erode its hard-won progress in building renminbi-based financial infrastructure. Beijing has already developed the world’s first central bank digital currency (CBDC) – the digital renminbi or e-CNY – but adoption remains slow.
China plans to explore the use of stablecoins pegged to the Hong Kong dollar, which is itself pegged to the US dollar. An offshore renminbi-backed stablecoin would allow China to extend its global financial reach without exposing its capital account to outflow risks. The Chinese government has not publicly endorsed the new framework, but it is likely that Beijing’s approval is required.
China’s vision for blockchain technology explicitly rejects decentralization in favor of closed systems developed by state-aligned tech giants. This approach allows pre-approved participants to operate within blockchain environments that retain transparency and traceability while remaining subject to regulatory oversight.
Beijing fears that US government support for bank-issued stablecoins could spur a rapid increase in their usage, strengthening the dollar’s dominant position in global trade. The Chinese leadership views dollar-backed stablecoins as a powerful use case for an infinitely divisible, programmable form of digital money that combines the dollar’s core strength with the security and anonymity of blockchain-based ownership.
The potential for dollar-backed stablecoins to displace the yuan in everyday transactions is a concern for Beijing. China once dominated cryptocurrency trading and mining but banned most crypto activities in 2021. However, individuals retained the right to own cryptocurrency as virtual property, and some companies are now exploring the use of blockchain technology for other purposes.
As momentum grows among scholars and companies advocating for Beijing’s authorization of a renminbi-backed stablecoin, it remains unclear how China will respond to the development. The competition for the future of digital money may well be winner-takes-all, with Beijing poised to marshal its resources behind a competing digital money model designed to reinforce state control.
Source: https://foreignpolicy.com/2025/08/19/china-stablecoins-crypto-dollar-genius-act