U.S. vs China: Dollar Stablecoins and the Digital Yuan Battle for Global Currency Power

The latest stage of U.S.–China economic competition goes beyond tariffs, export controls, or chip supply chains. Now, it is taking place in digital wallets.

Washington is counting on privately issued, dollar-pegged stablecoins, which are regulated and backed by reserves, to help the dollar reach further into online payments. In contrast, Beijing is moving forward with the state-controlled digital yuan (e-CNY) and cross-border projects aimed at reducing reliance on U.S.-centered payment systems.

Both countries aim to boost their currencies’ role in global trade and finance. The U.S. depends on the private sector, while China builds monetary control into government-run systems.

America’s new play: regulate stablecoins, export the dollar

In July 2025, President Donald Trump signed the GENIUS Act, the first major federal framework for “payment stablecoins” in the United States. The law intends to pull stablecoins closer to the regulated financial system by setting rules around reserves, oversight, and compliance.

The idea is simple: if stablecoins become widely used and most are backed by the dollar, global demand for dollars could grow, even outside U.S. banks. This could strengthen the dollar’s role in cross-border payments, remittances, and digital commerce as money becomes more programmable and tied to online platforms.

This is already happening in practice. Stablecoins are now the main way many crypto trades are settled, and they are being used more often for cross-border payments, especially where banking is slow, costly, or hard to reach. The U.S. hopes that clear federal rules will speed up adoption and make stablecoin systems seem safer to institutions.

However, the U.S. faces a major internal debate between banks and crypto platforms. One key issue is whether stablecoin issuers or crypto intermediaries should be allowed to offer rewards that look like interest. In early February 2026, a White House meeting aimed at resolving this deadlock ended without progress, showing how sensitive the stablecoin model has become.

This dispute is important because stablecoins combine the dollar’s global reputation with the private sector’s speed in scaling products. If stablecoins draw large amounts of deposits away from banks, they could change how credit is created and how monetary policy affects the economy. This raises the stakes for regulators as stablecoin use grows.

China’s countermodel: sovereign digital money and controlled experimentation

Beijing has long been wary of private cryptocurrencies, and China has maintained strict limits on crypto trading since the 2021 crackdown. Yet China is not “anti-digital money.” It is building a digital money system on its own terms.

The e-CNY, issued by the People’s Bank of China, has processed large cumulative volumes over multiple years of pilots and expansion. Chinese government figures reported 16.7 trillion yuan in cumulative e-CNY transactions as of the end of November 2025, alongside billions of transactions.

Still, e-CNY adoption has a major challenge: China already has very efficient private payment systems, such as Alipay and WeChat Pay. As a result, a state-backed option must compete on everyday usefulness, not just on policy or ideology.

Beijing’s larger goal becomes clearer when looking at cross-border payment systems instead of just domestic retail payments. One important project is mBridge, a multi-CBDC settlement initiative that reached a minimum viable product stage under the BIS Innovation Hub and continues to develop with central bank partners.

Hong Kong: the financial laboratory in the middle

While the U.S. is working to expand stablecoins through regulation, China is looking at ways to use stablecoin-like tools offshore without exposing the mainland to the volatility and capital-control risks of open crypto markets.

That’s where Hong Kong comes in.

Hong Kong passed a stablecoin licensing regime in May 2025, and the Stablecoins Ordinance took effect in August 2025, placing fiat-referenced stablecoin issuance under a formal regulatory framework. More recently, Hong Kong’s monetary authority signaled that the city expects to issue its first batch of stablecoin issuer licences in March 2026, initially in a very limited number—an early indication that regulators want growth, but not at any cost.

Geopolitically, Hong Kong offers a unique combination of global financial links, a common-law regulatory style familiar to international companies, and political alignment with Beijing. This makes it a likely testing ground for stablecoin infrastructure that could support trade settlement, especially for Chinese companies and partners, without creating an open crypto market on the mainland.

A new front opens: offshore yuan stablecoins.

The most direct signal yet that China is testing stablecoins as a currency tool came in late 2025, when AxCNH, described as the world’s first regulated offshore yuan-linked stablecoin, debuted in Kazakhstan after securing local regulatory approval. Reuters reported the project was launched by Hong Kong fintech AnchorX and supported by Confluxtechnology, positioning it as a cross-border payments instrument tied to the offshore yuan (CNH).

The message is clear. Dollar stablecoins currently lead global crypto settlements, but a regulated CNH stablecoin shows China wants to bring the yuan onto similar blockchain systems for some international uses, especially in trade routes tied to China’s economic diplomacy.

At the same time, Beijing’s posture remains cautious. In November 2025, the PBOC reiterated its tough stance on illegal crypto activity and flagged stablecoin-related risks around identification and anti-money-laundering enforcement—an implicit reminder that China’s digital currency strategy is built around control and traceability, not permissionless circulation.

What does this mean for dollar dominance?

For decades, the dollar has gained from network effects like deep Treasury markets, widespread use in invoicing, and payment systems that handle much of the world’s money through U.S.-linked channels. Now, the question is whether stablecoins can become a new way to spread these network effects, especially in places where mobile payments and cross-border trade are growing faster than traditional banking.

China’s approach challenges the U.S. differently. Instead of competing directly in open crypto markets, Beijing is creating parallel systems like CBDCs, cross-border settlement projects, and regulated offshore pilots. These could make yuan-based trade easier and slowly reduce the need for dollar settlements in certain areas.

Neither approach guarantees victory. Stablecoins face issues of governance, reserve credibility, and regulatory consistency across jurisdictions. CBDCs face adoption hurdles, privacy debates, and interoperability constraints. But together they show something bigger: currency competition is becoming software-driven.

The future may not be defined by a single “winner,” but by which system becomes easiest—and safest—for businesses to use at scale. If the U.S. can turn regulated dollar stablecoins into trusted digital cash, it could extend dollar dominance into the internet era. If China can make e-CNY and yuan-linked rails genuinely convenient for trade partners, it could carve out larger zones of yuan usage without fully liberalizing its capital account.

In any case, the competition over digital currency is no longer just a theory. It is happening now and picking up speed.