China sees USD stablecoins as a threat to the dollar’s control, a US policy group. Beijing to crack down on digital yuan.
The increasing dominance of USD stablecoins has caused concern in Beijing, a top US policy group has said. These cryptocurrencies that are pegged to the US dollar have put conventional financial structure under pressure and uprooted the monetary dominance of China.
China sees this as a direct challenge to its economic sovereignty and global financial aspirations, and this is reflected in a recent report by the Council on Foreign Relations (CFR).
What is behind the Chinese Fear? The Rising Strength of US-Backed Stablecoins
Stablecoins have the benefit of being fast, borderless, and safe transactions. This invention might circumvent the strict control of money flows by the Chinese.
The article on CFR explains that China is afraid that such currencies would weaken its influence on its population and limit control of capital movements.
The centralized digital yuan project is very different compared to the decentralized version of US-backed stablecoins.
This creates the fear among Chinese authorities that stablecoins might weaken the demand for the official digital currency of China.
Besides, in case USD stablecoins become widely used in the international domain, they would undermine Chinese efforts to turn the yuan into an internationalized currency.
The CFR article states that Beijing fears losing economic influence in case foreign actors want to use these digital dollars.
What Will be the Response of China? Strategic initiatives and tightening controls
China is stepping up its campaign to crack down on cryptocurrencies and digital assets. New limitations hope to prohibit transactions in stablecoins and crack down on offshore dollar substitutes.
According to the CFR analysis, Beijing could also fast-track the launch of its digital yuan in an effort to recover its leverage.
On top of this, there is a possibility that China would also exert some pressure through diplomacy to influence the countries against the use of USD stablecoins.
The report states that Beijing might popularize its currency to counter-balance and restrict US-backed digital finance.
Another aspect disclosed by the US policy group is that this fear is based on a wider geopolitical competition. Stablecoins represent an attack upon China and its inflexible financial system of world ambitions.
