How Stablecoins Are Strengthening the US Dollar – And Why China Is Worried
- The stablecoin market cap hit $240 billion, with USDT and USDC controlling 83%, raising concerns over US dollar dominance.
- China fears USD-pegged stablecoins could undermine its financial sovereignty, pushing for wider adoption of its digital yuan (e-CNY).
- China's e-CNY transactions reached $1 trillion by mid-2024, with efforts to integrate it into global trade through cross-border initiatives.
The stablecoin market has surged to a capitalization of $240 billion, marking a significant growth in this digital asset class.
According to CoinGecko data, Tether (USDT) and USD Coin (USDC) account for 83% of the global stablecoin market share. However, Chinese economists worry that the explosion of USD-pegged stablecoins could further strengthen the US dollar’s dominance.
The Stablecoin Boom and USD’s Role
Stablecoins, known for their price stability because they are pegged to assets like the US dollar, have become a crucial bridge between traditional finance and crypto.
According to CoinGecko data, the market capitalization of stablecoins has risen from $133 billion in 2024 to $240 billion by early 2025. This indicates growing acceptance in crypto trading, cross-border payments, and decentralized finance (DeFi).
USDT and USDC, the two largest stablecoins, dominate the market. President Donald Trump’s support has partly fueled their rapid growth. Recently, Trump urged Congress to pass stablecoin legislation to strengthen the USD’s global position.
“I’ve called on Congress to create simple, common-sense rules for stablecoins and market structure. With the right legal framework, institutions large and small will be enabled to invest, innovate, and take part in one of the most exciting technological revolutions in modern history,” said Donald Trump.
China’s Concerns: Stablecoins and Financial Power
The dominance of USD-pegged stablecoins has economic and geopolitical implications. Chinese economist Zhang Ming argues that stablecoins are a trading tool for the US to maintain economic power in the digital era.
“Once the US dollar stablecoin links the international credit of the US dollar with the application scenarios of the virtual world more closely, it may greatly consolidate the hegemony of the US dollar,” said Zhang Ming.
This is particularly concerning for China, which has developed the Cross-Border Interbank Payment System (CIPS) to reduce reliance on SWIFT and counter US financial sanctions. If USD stablecoins dominate international payments, China’s efforts to minimize USD influence could be undermined.
Moreover, EU Officials have warned that the US stablecoin push could undermine Euro stability.
To counter this, Zhang Ming suggests that China should focus on China Digital Yuan (e-CNY). It is the Chinese CBDC issued by the People’s Bank of China (PBoC), aiming to make it a direct competitor to USD stablecoins.
The adoption of e-CNY is accelerating. According to the Atlantic Council, the total transaction value of e-CNY reached 7 trillion yuan ($986 billion) as of June 2024, nearly quadrupling from 1.8 trillion yuan ($253 billion) in July 2023. By July 2024, the e-CNY app had attracted 180 million individual users, with cumulative transaction value reaching 7.3 trillion yuan ($1 trillion) in pilot regions, according to Euromoney.
According to Ledger Insights, the circulation of e-CNY also grew from 13.61 billion yuan in 2022 to 16.5 billion yuan by June 2023. These figures indicate that China is rapidly pushing for domestic adoption while laying the groundwork for international expansion.
Integrating e-CNY into cross-border payments is a strategic move. Projects like mBridge, a collaboration between PBoC and the Bank for International Settlements (BIS), expanded trials with 11 other central banks in 2024, showing its potential to compete with USD stablecoins in global trade.
However, for success, China must overcome challenges such as capital flow restrictions and concerns over transparency in its financial system.
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