China’s great fear: why dollar stablecoins are more dangerous than aircraft carriers

While the world focuses on Bitcoin's volatile price swings, China has its attention fixed elsewhere. Beyond the Great Wall, the real headache for authorities is not decentralized crypto assets, but… dollar stablecoins. These seemingly harmless tokens, pegged to what appears to be a “reliable” currency. But for Beijing, stable digital currencies have become more than an economic threat.

The Council on Foreign Relations (CFR) recently shed light on this issue, and their analysis is very telling.

This is not about money, but about sovereignty

At first glance, it's quite simple: a stablecoin is a kind of “digital dollar.” That is, in theory, it’s a convenient and fast way to transfer money into dollars, avoiding banking delays. But for China, which has for decades built a system of strict control over capital movements (and its citizens, too), it's a potential hole in its financial wall.

The American “GENIUS Act”, which essentially legalizes the issuance of such stablecoins for major banks, has become an alarming signal for Beijing. With it, an official, legally protected channel for bypassing Chinese financial regulations emerges. While stablecoins were once the domain of geeks, they could now become mainstream. As a high-ranking Chinese official noted: “They (Americans) want us to accept their currency, and we do not want to.” This reflects not just formal concerns but a fundamental unwillingness to cede control over China's financial system.

Chen Yulu, former deputy governor of the People’s Bank of China, spoke out even more firmly in July 2025:

In the past two years, certain countries have sought to push forward premature regulatory frameworks for stablecoins through legislation and long‑arm jurisdiction, while also suppressing and excluding the development space for other nations’ digital currencies… This could expose the global financial system to major risks from single‑asset volatility.

The biggest problem for China is a lack of control. Dollar stablecoins can move freely without an outside state monitoring system. This allows people to circumvent strict rules for withdrawing capital from the country. Why would anyone wait for permission to buy stocks abroad if they can just convert yuan to stablecoins, and voila – the capital is already out of the country? For Chinese authorities, who are used to controlling every yuan, this has become a nightmare. The CFR notes that this is not only an economic but also a political challenge that threatens the very essence of the Communist Party's power.

What is Beijing really fighting against?

China has long since stopped being afraid of Bitcoin. It simply banned it, and that was that. But the situation with stablecoins is different. These digital dollars undermine China's ambitions to create its own global financial system based on the yuan.

Beijing is actively promoting its digital yuan (e-CNY), trying to make it an attractive alternative to the dollar in international trade. The digital yuan, unlike stablecoins, is fully state-controlled. It allows every transaction to be tracked and ensures that all capital flows are in the hands of the state.

Stablecoins, on the other hand, strengthen the dollar. If they become a popular means of payment, it will only reinforce the dominance of the American currency, negating all of China's efforts to weaken it. The CFR quotes a former director of the People's Bank of China's research bureau, who warned several years ago: “We cannot allow digital currencies pegged to the dollar to become popular in China.” He explained that if this happens, the Americans will simply impose sanctions on Chinese citizens, who will then be unable to do business.

This is not the usual financial tactical competition, but a strategic geopolitical war. Whoever controls the money also controls the rules of the game. China sees that the United States wants to create a new, digital channel for the spread of its influence, and it dislikes this very much.

Perhaps most telling, even China's unofficial settlements with sanctions-hit Russia increasingly rely on dollar-pegged stablecoins rather than yuan-based alternatives. Even China's loyal satellite trusts the digital dollar more than the digital yuan, and this, of course, looks humiliating for a state that has ambitions to become a global hegemon on par with the United States.

What measures can China take? ​​

Beijing won't remain passive. It has several strategic options, likely pursuing multiple paths simultaneously:

Intensified crackdowns. China has already banned cryptocurrencies but will likely escalate enforcement against stablecoin usage through stricter internet monitoring, new legislation, and tighter capital outflow restrictions.

Reviving the offshore yuan (CNY). Though this ambitious project has stalled due to the currency's managed nature deterring international partners accustomed to dollar predictability.

Promoting the digital yuan internationally. China will push its e-CNY beyond domestic borders as a state-controlled alternative – essentially creating its own “stablecoin” requiring permission for use.

The ultimate goal: financial sovereignty

This represents China's broader strategy to create financial instruments that serve dual purposes – economic effectiveness and political control. By embedding surveillance mechanisms into its digital currency, China aims to monitor every transaction while challenging dollar dominance. 

The stablecoin battle reflects a fundamental clash between competing visions: America's market-driven digital dollar expansion versus China's state-controlled financial ecosystem. For Beijing, this isn't just about currency – it's about preventing the digitization of American financial hegemony and building alternatives that reinforce Party authority.

The outcome will determine whether the next phase of global finance operates under decentralized market forces or centralized state control.