Stablecoin Market Surges 100% to $240 Billion, China Accelerates e-CNY Adoption

The stablecoin market has experienced significant growth, reaching a capitalization of $240 billion. This surge highlights the increasing acceptance of stablecoins in various financial applications, including crypto trading, cross-border payments, and decentralized finance (DeFi).

Tether (USDT) and USD Coin (USDC) are the dominant players in this market, accounting for 83% of the global stablecoin market share. The rapid growth of these stablecoins has been partly fueled by support from Donald Trump, who has urged Congress to pass stablecoin legislation to strengthen the US dollar’s global position. Trump emphasized the need for a legal framework that would enable institutions to invest and innovate in this technological revolution.

However, the dominance of USD-pegged stablecoins has raised concerns among Chinese economists. Zhang Ming, a prominent economist, argues that these stablecoins could further consolidate the US dollar’s hegemony in the digital era. This is particularly concerning for China, which has been developing 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.

In response to these concerns, China is accelerating the adoption of its own digital currency, the China Digital Yuan (e-CNY). Issued by the People’s Bank of China (PBoC), the e-CNY aims to compete directly with USD stablecoins. 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. The circulation of e-CNY also grew from 13.61 billion yuan in 2022 to 16.5 billion yuan by June 2023, indicating China’s rapid push for domestic adoption and international expansion.

China is also integrating e-CNY into cross-border payments through projects like mBridge, a collaboration between PBoC and the Bank for International Settlements (BIS). This project expanded trials with 11 other central banks in 2024, showcasing 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.

In summary, the surge in stablecoins, particularly those pegged to the US dollar, is strengthening the US dollar’s dominance in the digital era. This trend has raised concerns among Chinese economists, who view it as a tool for the US to maintain its economic power. In response, China is accelerating the adoption of its digital currency, the e-CNY, to counter the influence of USD stablecoins and assert its own financial power in the global arena.