Concerns Raised by China Over Dollar-Backed Stablecoins
China has expressed worries regarding the increasing dominance of US dollar-backed stablecoins in the global financial system. A senior economist from a prominent research institution in the country has cautioned that the unchecked growth of these stablecoins could further strengthen the United States’ control over the international monetary system.
Dollar-Backed Stablecoins: A Cause for Alarm
- Zhang Ming, a deputy director at the Institute of Finance and Economics and the National Finance and Development Laboratory, highlighted the overwhelming preference for US dollar stablecoins in the current landscape.
- He raised concerns that if the US manages to integrate dollar-pegged stablecoins into global credit markets, it could enhance the dollar’s dominance in both physical and digital economies.
- Zhang argued that this situation would pose significant challenges for other currencies in terms of global competition.
According to data from CryptoSlate, Tether (USDT) and USD Coin (USDC) now hold approximately 90% of the stablecoin market share. USDT boasts a market cap of $143 billion, while USDC controls nearly $60 billion, making them key players in the $236 billion stablecoin sector.
These stablecoins play a crucial role as trading pairs on various cryptocurrency exchanges, offering liquidity and serving as intermediaries between fiat currencies and digital assets such as Bitcoin and Ethereum. Additionally, in many developing nations, these assets are popular as digital stores of value, aiding users in safeguarding their purchasing power amidst economic instability.
Digital Yuan Expansion Strategy
The report recommends that China intensify its efforts to promote the international adoption of the digital yuan (CNY). It suggests expanding the utilization of digital tokens on both domestic and international platforms to align sovereign credit with global application scenarios.
By implementing appropriate design and risk management measures, Zhang believes that these initiatives could help enhance the renminbi’s status and counterbalance the growing influence of dollar-denominated stablecoins.
“As long as the design and risk prevention and control are appropriate, expanding the use of digital tokens on these platforms can significantly expand the international currency status of RMB, thereby more calmly responding to the challenges of US dollar stablecoins.”
China’s concerns echo similar alerts raised in Europe. Recently, EU officials voiced apprehensions that the US’s pro-cryptocurrency stance could give dollar-backed stablecoins an advantage over Euro-based alternatives. Pierre Gramegna, managing director of the European Stability Mechanism, emphasized that this trend might jeopardize the EU’s financial independence.
