The Currency Race Moves to Blockchains
Tariffs, export controls, chip supply chains are all child's play compared to the new frontier of U.S. to China economic rivalry: digital wallets.
Washington banks on privately issued, dollar-pegged stablecoins that are regulated and reserve-backed to drive further reach for the dollar in online payments. Beijing pushes ahead with the state-backed digital yuan (e-CNY) and cross-border initiatives to decrease reliance on U.S.-dominated payment systems.
Each nation wants to increase its currency's use in international transactions. The United States leverages private markets. China mandates currency control through state institutions.
America's Play, Regulate Stablecoins and Export the Dollar
In July 2025, President Donald Trump enacted the GENIUS Act, the first comprehensive federal regulatory framework for "payment stablecoins" in the U.S. The law aims to bring stablecoins into the regulated financial fold by codifying regulations related to reserves, supervision, and compliance.
It's easy to see how this could play out. If stablecoins are used heavily by consumers, and most stablecoins are dollar-backed, that will increase worldwide demand for dollars outside the US banking system. This could further entrench the greenback's use in cross-border payments, remittances, and digital transactions as currencies become more programmable and payments more intertwined with online platforms.
It is already occurring in real time. Stablecoins increasingly settle crypto trades and are frequently used for cross-border payments, typically in nations where traditional banking is expensive, slow, or inaccessible. Regulators in the U.S. hope that having clear federal regulations in place will accelerate adoption and make stablecoin networks appear more institutional-grade secure.
The Banks Versus Crypto Fight
Still, one primary internal battle between banks and crypto platforms is roiling the United States. One issue at hand is whether issuers of USDC and other stablecoins or crypto intermediaries can legally provide "interest-like" rewards. A White House meeting held in early February 2026 failed to break the stalemate, highlighting the sensitivity around the stablecoin model.
The significance of this debate stems from stablecoins' marrying of the dollar's global trustworthiness with the agility of the private sector to scale products. Large-scale relocation of dollar deposits from banks to stablecoins could shift credit creation and monetary transmission functions. This could raise the stakes for regulators as stablecoins become more widely used.
China's Countermodel, Sovereign Digital Money
Beijing has been hostile toward private cryptocurrencies for some time now. China has severely restricted crypto trading following its 2021 crackdown. However, China is not "anti-digital money." The government is creating its own version of a digital money system.
Issued by the People's Bank of China, the e-CNY has seen large cumulative transactions through years of pilots and scaling up. By the end of November 2025, Chinese officials reported 16.7 trillion yuan of cumulative transactions with the e-CNY, alongside billions of transactions.
Another big obstacle for e-CNY adoption is that China already has very convenient private payment options, like Alipay and WeChat Pay. The government-backed option needs to compete with them on daily convenience rather than policy or ideals.
The Cross-Border Play
Examining Beijing's ambitions around cross-border payment systems rather than domestic-focused retail payments makes this objective clearer. mBridge, a multi-CBDC settlement platform, was developed into a minimum viable product through the BIS Innovation Hub and is further being developed with partner central banks.
Hong Kong, The Financial Laboratory in the Middle
As the U.S. seeks ways to grow stablecoins through regulation, China is exploring how to harness stablecoin-like instruments abroad while shielding the mainland from the volatile, capital-control risk that open crypto markets pose.
That's where Hong Kong comes in.
Hong Kong legislated a stablecoin licensing regime in May 2025. The Stablecoins Ordinance became effective in August 2025, bringing fiat-referenced stablecoin issuance into a regulated regime. Hong Kong's de facto central bank recently announced that regulators expect the first handful of stablecoin issuer licenses to be awarded in March 2026. The licenses will initially be issued in very limited number, which some are viewing as an early sign that regulators will allow growth in the sector, but not without concessions.
Hong Kong's geopolitical advantages include existing global financial ties, common-law regulator-style familiar to foreign corporations, and Beijing-friendly politics. All these factors make it an ideal place to trial stablecoin infrastructure for trade settlement purposes that would benefit Chinese companies and trading partners without opening mainland China up to a free crypto market.
A New Front, Offshore Yuan Stablecoins
The clearest indication to date that China is experimenting with stablecoins as a monetary policy instrument surfaced in late 2025 when AxCNH, billed as the world's first regulated offshore yuan-backed stablecoin, launched in Kazakhstan after receiving authorization from local regulators. The project was developed by Hong Kong-based fintech firm AnchorX and is backed by blockchain company Conflux Technology. The stablecoin is designed to act as a cross-border payments vehicle pegged to the offshore yuan, also known as CNH.
Point taken. Dollar stablecoins dominate global crypto settlements, but China's issuance of a regulated CNH stablecoin suggests it wants to place the yuan on a similar distributed ledger for at least some cross-border purposes, notably along trade corridors associated with Beijing's economic statecraft.
Meanwhile, Beijing continues to hedge. In November last year, the PBOC doubled down on its crackdown on illegal cryptocurrency activities and highlighted the risks posed by stablecoins when it came to identification and anti-money laundering measures. It was a subtle signal that China's vision for its digital currency rests with governance and surveillance, not decentralized dissemination.
What This Means for Dollar Dominance
The dollar has benefited for decades from network effects such as deep Treasury markets, broad invoicing currency status, and payment system networks that process trillions of dollars through U.S.-dependent conduits. The big unknown is whether USDT and other dollar-pegged stablecoins provide an emerging vector for network effects where mobile payments and international trade surpass legacy banking infrastructure growth.
China is playing a different game than the U.S. Rather than trying to outcompete dollar hegemony in open crypto markets, Beijing has been developing alternative infrastructures like CBDCs, cross-border settlement projects, and regulated offshore pilots. These networks could simplify yuan-based commerce and gradually displace dollar settlements in niche areas.
Neither strategy is guaranteed success. Stablecoins suffer from governance concerns, reserve reliability, and cross-jurisdictional regulatory fragmentation under evolving crypto regulations. CBDCs confront adoption barriers, privacy controversies, and interoperability limitations. Combined, they highlight a larger trend at work: monetary competition is going digital.
The world's future may not hinge on one "winner" technology, but on which system is easiest and safest to use at scale for businesses. America's best chance to export dollar dominance into the internet age may be through regulated dollar stablecoins becoming trusted digital cash. China's best chance at larger zones of yuan usage without full capital account liberalization may be through e-CNY and yuan-backed rails actually becoming convenient for trade partners.
Either way, the battle for crypto hasn't merely begun. It's already underway and gaining momentum.
