China is intensifying efforts to promote its digital yuan (e-CNY) in a bid to challenge the dominance of US dollar-pegged stablecoins in global trade.
According to a recent report from Chinese media, the Chinese Communist Party has expressed concerns over the US's growing interest in stablecoin development. The report, published by the deputy director of the National Finance and Development Laboratory (NFDL), warns that US stablecoins have the potential to reshape global financial markets. As a result, China must expedite the adoption of its central bank digital currency (CBDC) to compete on equal footing with US stablecoins.
US stablecoins seen as a financial threat
The report categorizes digital assets into three main groups: Bitcoin, stablecoins (represented by USDT and USDC), and CBDCs (represented by e-CNY). It states that Bitcoin is not a real currency but rather a unique financial asset with investment value. However, due to its high price volatility, Bitcoin is considered a risky asset. Despite this, Bitcoin has exhibited an inverse correlation with the US dollar exchange rate, leading some investors to view it as a hedge against fluctuations in traditional fiat currencies, especially the US dollar.
Among these three asset types, stablecoins are deemed the most influential in the international financial system. Since they are backed by sovereign currencies and share similar financial characteristics, US stablecoins, in particular, benefit from the stability of the US dollar, making them highly accepted by global investors. This year, the stablecoin market has surpassed a $200 billion market capitalization.
Given this landscape, Chinese leaders emphasize that it is time for the digital yuan to evolve and remain competitive.
Expanding the use of the digital yuan
China was the first country to launch a CBDC, but its transactions have remained largely confined to the retail sector. The report highlights that if China aims to compete with US stablecoins, the digital yuan must expand beyond consumer transactions.
Specifically, the report proposes broadening e-CNY's payment scope from M0 (cash) to M1 (cash plus demand deposits) and even M2 (cash plus all deposits) as soon as possible. This would enable wider adoption of the digital yuan both domestically and internationally.
Additionally, the report urges China to develop its own stable digital currency while promoting the increased use of digital tokens on online platforms. Furthermore, seamless integration of the digital yuan with global applications is deemed essential.
Europe also seeks a stablecoin solution
Recently, the European Central Bank (ECB) also addressed the necessity of a stablecoin for the euro. Chief Economist Phillip Lane stated in a speech that “The digital euro would provide a secure, universally accepted digital payment option under European governance, reducing reliance on foreign providers.”
He also pointed out that tech giants such as Apple Pay, Google Pay, and PayPal are dominating Europe’s digital payments market, threatening the region’s financial independence. His statement came shortly after Michael Saylor’s post, which read: “EUR gonna need BTC.”