US-China crypto rivalry rests on a flip of a coin
Dollar stablecoins are not just economically disruptive – they are a threat to Beijing’s monetary policy
A new front has opened in the trade war between China and the United States, sparking a cryptocurrency confrontation. Last month, President Donald Trump rolled out the GENIUS Act, which aims to make stablecoins a part of everyday life in the US.
But the fallout will be felt far beyond American shores. “As US-backed stablecoins gain traction, they threaten to bypass China’s financial controls,” Zongyuan Zoe Liu, of the Council on Foreign Relations, pointed out last week.
“[Now,] the Chinese government is poised to counter with its own tightly regulated digital money,” she wrote in a commentary for CFR.
Beijing is so concerned about Washington’s crypto push that it is “speeding up plans to create systems” that can monitor what is perceived to be a national security menace.
Behind the acronym:
- The GENIUS Act is short for Guiding and Establishing National Innovation for United States Stablecoins.
- It will create a framework for regulated American banks to issue digital dollars. Up to US$1.75 trillion in stablecoins could enter circulation in the next three years.
The consequences will reverberate far beyond the United States’ borders.
Zongyuan Zoe Liu, of the Council on Foreign Relations
Delve deeper: Unlike most cryptocurrencies, which tend to swing widely in price, stablecoins are pegged to non-digital assets such as traditional fiat currencies. Being linked to the US dollar or euro makes them less volatile.
Between the lines: “[Still], the consequences of [the GENIUS Act] will reverberate far beyond the United States’ borders, reshaping the global monetary landscape,” Liu, of the Council on Foreign Relations, said.
Why it matters: “[They will] challenge the strategic calculations of every country that relies on the dollar to settle international trade, [including] China,” she added.
Big picture: The GENIUS Act is not just about stablecoins – it’s about positioning the US as the architect of the next financial era, Igor Volovich, of the America First Technology Infrastructure & Innovation Initiative, told The Diplomat earlier this month.
Bottom line: “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 a political threat,” CFR’s Liu said.
China Factor comment: Controlling the flow of money has been one of the key pillars of the ruling Communist Party of China, a form of “financial repression.” If Beijing loses that control, it risks crashing the “system.”