Stablecoins have opened a new field in the rivalry between China and the United States. This is a type of cryptocurrency that can maintain a fixed value by being pegged to other assets such as Bitcoin, or the US dollar, or the Chinese renminbi.
In Hong Kong and Washington, bills to regulate stablecoins have recently become law. Hong Kong is attempting to reestablish a position in the global financial world by setting up an economic hub for stablecoins and other ventures in what is known as “Web3”, the next generation of the internet based on decentralisation and blockchain technology. Meanwhile the Trump administration is heavily involved with cryptocurrencies, bolstered by the support of “crypto bros” who funded President Donald Trump’s campaign.
Stablecoins could have far reaching consequences for the two economies, while also reshaping global finance.
Hong Kong as stablecoin base
The Stablecoins Bill, passed by the Hong Kong Legislative Council in May, is a comprehensive regulatory framework designed to regulate stablecoins that are pegged to traditional currencies. The Hong Kong stablecoin bill adds to Beijing’s efforts to create an alternative to the US-dominated economic order. Alongside the Cross-Border Interbank Payment System (CIPS), plans for BRICS Pay, the digital renminbi and the growing use of the renminbi for international transactions, Hong Kong stablecoins present another avenue for China to conduct international trade outside of the dominance of the US dollar.
Promoters of cryptocurrency have long been convinced of its capacity to change the world.
China appears keen to keep government-backed stablecoins in Hong Kong, while ensuring that stablecoins and other cryptocurrencies are kept outside of the mainland. Although not officially banned by the central government, Stablecoins and cryptocurrencies such as Bitcoin are heavily restricted in mainland China. Beijing plans to ensure central financial control for digital currency, urging its citizens to use the digital renminbi instead of decentralised digital assets.
But Hong Kong has been allowed to enter the stablecoin market. After the 2019 protests and the Covid-19 pandemic, the Chinese government has been intent on restoring Hong Kong’s place as a global financial hub. The stablecoins bill is a part of that effort to entice foreign banking organisations to return to Hong Kong. The city will once again become another gateway for China, this time for Web3 and cryptocurrencies. While within the mainland crypto will remain suppressed, it will likely bloom in Hong Kong, allowing China to trade with them internationally. Domestic markets will be free from its volatility and anarchic nature.
America: The land of crypto
Last month, Trump signed the Guiding and Establishing National Innovation for US Stablecoins Act (GENIUS Act) into law. This bill similarly aims to create a “comprehensive regulatory framework” for stablecoins. It requires stablecoins to be pegged to the US dollar or other low risk assets, to be registered with regulators, and ensure that they meet audit requirements. The GENIUS act seeks to maintain the supremacy of the US dollar in the ever-growing world of digital payments. Stablecoins are seen as more than just an investment but as a form of payment, with those pegged to the US dollar already rising in use, even in China’s fintech sector.
The question, however, is how much the US tilt to stablecoins can truly be seen as the American government advancing the interests of the country versus how much of it is about advancing the interests of Trump and his close allies? A pillar of Trump’s support in his 2024 campaign was the “crypto-bros,” tech investors and executives with portfolios heavily based on cryptocurrencies and their connecting technologies. These figures, including Elon Musk, supported Donald Trump on the hope that he would in turn pass favourable legislation. The GENIUS act sees those hopes coming to fruition.
Trump’s actions have fostered doubts. His “$Trump” meme coin, launched three days before his inauguration, rose some 300% over the initial price, before dropping by half. The people behind the $trump coin (including Trump) reportedly made an estimated US$100 million in trading fees. It appeared to be a rug pull, where developers of a coin abandon the coin after making initial profits, leaving buyers with a useless asset. The GENIUS Act could see such schemes proliferate.
Promoters of cryptocurrency have long been convinced of its capacity to change the world. As the new forms of digital currency become more like real world currency, with underlying regulations and stability, its integration into the global financial order will increase. Stablecoins are another step. But the dangers of crypto remain.