China’s stablecoin bind: why US dollar tokens matter – and how Beijing may respond

Once a niche corner of the cryptocurrency world, stablecoins have surged into the global spotlight this year, prompting analysts and industry insiders to declare that the digital asset’s time has come.

In July, US President Donald Trump signed the GENIUS Act into law, establishing the first federal regulatory regime for stablecoins – a move many believe could pave the way for mass-market adoption.

Shortly after, Hong Kong introduced its own ordinance, which took effect on August 1, requiring issuers to be licensed by the Hong Kong Monetary Authority.

Wall Street has taken note. In August, analysts from leading investment bank Goldman Sachs dubbed the past few months the “summer of stablecoins”.

But for China, the rise of the digital asset underscores a long-standing dilemma. Despite turning Hong Kong into a testing ground, Beijing continues to restrict the unconventional digital asset, wary of the risks associated with crypto. At the same time, it faces a daunting prospect: the fear that stablecoins further entrench the US dollar’s dominance in the international monetary system.

Unlike highly volatile cryptocurrencies like bitcoin or ethereum, stablecoins are pegged 1:1 to fiat currencies like the US dollar or Hong Kong dollar, or to other reserve assets. Designed to live up to their name, they aim to combine the efficiency of digital assets with the reliability of traditional money – so long as the currency behind them remains strong.

But while stablecoins can, in principle, be pegged to any fiat currency, more than 99 per cent are backed by the US dollar or dollar-denominated assets – far outstripping the greenback’s roughly 50 per cent share in global payments and 58 per cent share in global foreign exchange reserves.

South China Morning Post