The power to control access to money is no longer the exclusive privilege of the sovereign. Increasingly, the rules governing how money is created, moves, and is held are enforced not by governments alone but by code, online networks, and protocols beyond the authority of any single nation. The U.S. GENIUS Act—short for Guiding and Establishing National Innovation for U.S. Stablecoins—formalizes this transformation of money by creating a framework for regulated U.S. banks to issue dollar-backed stablecoins: digital tokens designed to reliably trade near their $1 par value because they are backed by real dollars or safe assets held in reserve.
These tokens can move instantly across the internet, often bypassing the traditional banking system and its know-your-customer rules. Many operate on decentralized blockchains where transactions are recorded on public ledgers maintained by distributed computer networks that span the globe—beyond the practical reach of any sovereign authority.
This removes the biggest obstacle holding back the development of stablecoins: the lack of a fully credible peg. Historically, stablecoin issuers lacked the financial wherewithal to credibly maintain their peg to the U.S. dollar and had no liquidity support from the U.S. Federal Reserve, unlike banks. As a result, stablecoins rarely lived up to their moniker: Several collapsed outright, while others have frequently depegged, trading below their $1 par value during periods of volatility.
Yet with banks potentially guaranteeing 1:1 redemption of stablecoins for dollars, these tokens would become functionally equivalent to other financial assets, such as time deposits or commercial paper, that are already recognized “cash equivalents” under international accounting standards. The largest U.S. banks are already working on plans to issue stablecoins.
Some estimates forecast that as much as $1.75 trillion in new dollar-backed stablecoins could enter circulation over the next three years. If this comes to pass, the consequences of this expansion could reverberate far beyond U.S. borders—especially in 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 use pseudonyms that provide a strong, but not unbreakable, level of anonymity. While blockchain transactions are inherently public, enabling data analysis to potentially identify wallet owners, this task will become increasingly difficult if stablecoins go mainstream. The result is a new channel for transacting in dollars that the Chinese state cannot fully monitor, throttle, or shut down.
From the perspective of the Chinese Communist Party (CCP), dollar stablecoins are not just a potentially disruptive economic issue but also a political threat. One of the pillars of the 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 ensuring the loyalty of China’s elites to the CCP 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 their potential to lower international transaction costs. It is conceivable that after gaining traction among businesses, dollar stablecoins could begin to displace the yuan 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 may seem like a distant threat, it is nonetheless an existential one—and the CCP knows it.
A team of researchers with e-commerce giant JD.com 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 warned that the use of dollar stablecoins was “expected to increase the demand for U.S. [Treasurys], lower interest rates, and secure the dollar’s status as the world’s reserve currency.”
For Beijing, dollar stablecoins threaten to erode its 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 once dominated cryptocurrency trading and mining. In 2013, four years after the creation of bitcoin, Chinese exchanges led the world in trading volumes, and bitcoin’s price was strongly correlated 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 of money laundering, capital evasion, and the facilitation of organized crime. 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.
Over time, this evolved into a near-total ban. In September 2021, regulators declared all cryptocurrency-related financial activities illegal—including trading, payments, token issuance, fundraising, and derivatives. The net effect was that by 2021, most of the crypto industry was driven out of China.
However, individuals retained the legal right to own cryptocurrency as virtual property, as clarified by several court rulings dating back to 2018 from Shenzhen, Hangzhou, and Shanghai. Meanwhile, despite cracking down on cryptocurrency specifically, Chinese authorities have never 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, Chinese President Xi Jinping described it as a core technology for achieving indigenous innovation and called for increased investment to accelerate its development. China’s 14th Five-Year Plan (2021-25) similarly identified blockchain as a foundational industry for the digital economy.
China’s vision for blockchain explicitly rejects the principle of decentralization in favor of closed systems developed by state-aligned tech giants such as Ant Group (a subsidiary of Alibaba) and Tencent (owner of WeChat). These firms have poured significant resources into realizing Beijing’s strategic tech goals. According to Coincub’s 2023 Blockchain Patent Report, China leads the world in the number of granted blockchain patents since 2009, accounting for roughly 68 percent of the global total.
State-backed initiatives such as the Blockchain-Based Service Network and Spark Chain Network, along with enterprise platforms such as AntChain and Tencent’s TrustSQL, exemplify this centralized approach. These systems allow preapproved participants to operate within blockchain environments that retain transparency and traceability while remaining fully subject to regulatory oversight by China’s Cyberspace Administration.
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 a white paper on the development progress of the e-CNY in China, which highlighted 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. Chinese financial media described the e-CNY as having become an “embarrassing situation” in which “no one uses it” unless it’s accompanied by a government-sponsored retail promotion offering free “digital red envelopes.” Despite state-led trials across dozens of cities and heavy institutional support, the e-CNY has struggled—like bitcoin and other cryptocurrencies—to find any everyday usage for payments.
Mu Changchun, the director-general of the central bank’s Digital Currency Institute, has repeatedly said the e-CNY is not intended to replace paper money 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 such as WeChat Pay and Alipay.
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. A 2024 S&P Global Ratings report concluded 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, Hong Kong’s Legislative Council passed the landmark Stablecoins Bill, 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.
Hong Kong serves as China’s financial laboratory: It is legally distinct yet politically aligned, globally integrated yet institutionally loyal. While 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.
A renminbi-backed stablecoin would likely be fully traceable, linked to China’s digital ID system with real-name verification and facial recognition, enabling authorities to monitor every transaction in real time. While this strengthens anti-money laundering efforts, it also poses risks of pervasive financial surveillance. At best, it allows precise macroeconomic policy; at worst, it becomes a tool for enforcing political discipline and restricting undesirable economic behavior. For Beijing, blockchain’s value lies not in decentralization but in using code to refine state control. In this model, money is more than a medium of exchange; it becomes an instrument for implementing government policy and exercising social control.
The programmability of stablecoins could allow Chinese authorities to embed usage restrictions directly into the currency itself. Features already tested in the e-CNY—such as expiration dates, sector-specific spending limits, and geographic limitations—could be adapted to serve government objectives. Moreover, geofencing could limit circulation of an offshore renminbi stablecoin to only licensed zones, such as Hong Kong and other financial centers, with transaction limits and user eligibility hard-coded on the blockchain. This would preserve China’s capital controls while allowing the stablecoin to circulate globally. Unlike the e-CNY, which remains primarily domestic despite ambitions for international use, an offshore stablecoin pegged to CNH could extend China’s global financial reach without exposing its capital account to outflow risks.
Momentum is growing among scholars and companies advocating that Beijing authorize a renminbi-backed stablecoin to proactively counter the influence of dollar stablecoins. Already, JD.com and Alibaba affiliate Ant Group both plan to issue stablecoins backed by Hong Kong dollars. Wang Yongli, a former vice president of the Bank of China, has publicly urged the government to consider launching an offshore renminbi stablecoin to reclaim its former lead in crypto assets and digital payments. In a telling sign, none of these proposals has been silenced by the government.
China does not intend to follow the United States down the path of permissionless, decentralized cryptocurrencies with pseudonymous transactions. Instead, it is poised to marshal its considerable resources behind a competing digital money model—one designed to reinforce, not relax, state control. Whereas early cryptocurrencies such as bitcoin sought to dismantle authority, Beijing’s goal is to build a digital monetary architecture that encodes and enforces it. Given the economies of scale and positive network effects that drive adoption, the competition for the future of digital money may well be winner-takes-all. Beijing fears that Washington currently holds the advantage, but the Chinese know how to catch up—and fast.