Key Takeaways
- Washington lawmakers are increasingly wielding stablecoin policy to promote U.S. economic interests.
- However, critics of dollarization in China and Europe have started to push back.
- Former People’s Bank of China leaders argued that dollar-pegged stablecoins pose a growing threat to financial stability.
In recent years, stablecoins have helped push back against a two-decade-long trend for dedollarization, and recent moves in Washington suggest the government now fully supports the technology.
This has prompted alarm among foreign governments. For example, the former deputy governor of China’s central bank warned against “major risks” from stablecoins, which he depicted as a tool for U.S. “financial hegemony.”
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Beijing Expresses Stablecoin Concerns
While the EU’s efforts to reduce the influence of the greenback have traditionally been oriented toward its internal economy, Beijing’s stance is more assertive.
Alongside the other BRICS countries, China has promoted a cross-border payment system that would bypass the dollar entirely, setting a new standard for international trade.
Like the ECB, the People’s Bank of China (PBC) favors central bank digital currencies (CBDCs) as its preferred means of protecting monetary sovereignty.
Aat a recent forum, former PBC Vice Governor Chen Yulu warned that Washington’s support for dollar-pegged stablecoins risked undermining its CBDC efforts.
“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,” he said.
This could “expose the global financial system to major risks from single-asset volatility,” Chen Yulu warned.
Stablecoins and Dollar Dominance
While there are fierce partisan disagreements over the best way to regulate stablecoins, lawmakers on both sides of the aisle recognise the politico-economic opportunity they present.
In March, Treasury Secretary Scott Besent said: “We are going to keep the [U.S. dollar] the dominant reserve currency in the world, and we will use stablecoins to do that.”
Despite their otherwise conflicting worldviews, his comments echo the views of his predecessor, Janet Yellen. Policy documents published during her tenure noted that stablecoins and other emerging payment technologies could “help maintain the continued primacy of the dollar.”
This position is also commonplace in Congress, with Democrats like Kirsten Gillibrand joining a string of Republicans who have argued that passing stablecoin regulation is critical to maintaining U.S. dollar dominance.
Resisting Digital Dollarization
With Washington lawmakers increasingly wielding stablecoin policy to promote U.S. economic interests, other countries could move to insulate themselves from the influence of digital dollars.
Consider views expressed by the European Central Bank (ECB), for example.
Not so long ago, warnings about the threat to European monetary sovereignty posed by stablecoins were mostly in the subjunctive mood. But they have taken on new urgency amid increasingly aggressive U.S. stablecoin policy and the breakdown of transatlantic cooperation in the Trump era.
In a blog post on Monday, July 28, the ECB’s Payments Advisor, Jürgen Schaaf, said there is “no room for complacency” in resisting the influence of digital dollars.
Although not reflecting a policy change, Schaaf’s call for the central bank to support euro-denominated stablecoins marks an important development.
Up until now, the ECB’s default position has been that central bank-issued digital euros will act as some kind of magic bullet to keep stablecoins at bay. But in Brussels and beyond, calls for Europe to embrace the technology are growing louder.
Financial Stability Risk
Like Chen Yulu, the central bank’s former president, Li Lihui, accused the U.S. of using stablecoin policy to “secure global monetary and financial hegemony in the digital era.”
Allowing dollar stablecoins to proliferate unchecked would lead assets like USDC and USDT becoming deeply embedded in the global financial system.
This “could trigger a financial crisis,” Li Lihui argued, as “an unstable U.S. economy and dollar would inevitably undermine the stability of dollar-backed stablecoins,” with knock-on effects for the broader crypto ecosystem and global financial markets.
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James Morales is CCN’s blockchain and crypto policy reporter. He has been working in the news media since 2020, writing about topics such as payments, banking and financial technology. These days, he likes to explore the latest blockchain innovations and the evolving landscape of global crypto regulation.
With an educational background in social anthropology and media studies, James uses his platform as a journalist to explore how new technologies work, why they matter and how they might shape our future.
