China's Stablecoin Grand Strategy: From Avoiding Hegemony to Reshaping Order

Authors: Wang Yang, Bai Liang, Source: FT Chinese Network

The current international monetary system is undergoing the most profound transformation since World War II. The U.S. "GENIUS Act" attempts to maintain the dollar's status by regulating stablecoins, but it may have the opposite effect. For China, stablecoins present a historic opportunity—not to challenge the dollar's market dominance, but to undermine the structural hegemony of the dollar. Understanding this distinction is a prerequisite for formulating the right strategy.

1. Dollar Hegemony and Dollar Dominance: Essential Differences

Many analysts confuse "USD Hegemony" with "USD Dominance", but these are two entirely different concepts. USD Dominance refers to the dollar's largest share in international trade and reserves—currently accounting for about 88% of global foreign exchange transactions and 60% of official reserves. This dominant position is based on market choice: the dollar has the best liquidity, the deepest market, and is relatively the most stable. Even if the yuan is fully convertible, it is extremely difficult to shake this efficiency-based dominance in the short term.

The hegemony of the US dollar is a completely different matter. It is not a question of market share, but rather a question of structural power. This is specifically manifested in: First, the monopolistic control of global payment infrastructure. The SWIFT system handles over 90% of cross-border payment information globally, while CHIPS (Clearing House Interbank Payments System) processes over 95% of dollar clearings. The US can cut off access to any country or institution at any time. After Iran was kicked out of the SWIFT system in 2012, its foreign trade dropped by 30%. This is not because trading partners did not want to do business with Iran, but rather because it was technically impossible to complete payments.

Second, the jurisdiction of dollar clearing extends. Any dollar transaction, no matter where it occurs in the world, is theoretically subject to U.S. law as long as it goes through the CHIPS system. In 2014, France's BNP Paribas was fined $8.9 billion for violating U.S. sanctions against Sudan and Iran. None of these transactions took place within the United States, but because they used dollars and were cleared through CHIPS, they automatically fell under U.S. legal jurisdiction.

Third, the collateral effects of financial sanctions. The secondary sanctions imposed by the United States mean that not only the direct targets are affected, but any third parties that have business dealings with the targets also face the risk of being sanctioned. This creates a "contagious fear"—even if you are not sanctioned yourself, you dare not trade with sanctioned entities. The Huawei incident fully demonstrates this power: global suppliers do not want to sell products to Huawei, but they are afraid to.

A vivid metaphor: The dominance of the US dollar is like the Olympic swimming competition, where American athletes are indeed the strongest, winning the majority of the gold medals, but athletes from other countries can still compete and have a chance to win awards. In contrast, the hegemony of the US dollar is like this: not only do American athletes swim the fastest, but they also serve as the chief referee, control drug testing, can cancel the qualifications of other athletes at any time, and even drain the entire pool. In recent years, we have indeed seen how the US has used the drug testing system against athletes from specific countries — this is akin to the logic of financial sanctions.

2. The Current Situation and Strategic Choices of China

In the face of this situation, China must be clearly aware of the limitations of its own conditions. Currently, the offshore RMB scale is only 2000-300 billion USD, mainly concentrated in Hong Kong; while the total scale of USD stablecoins USDT and USDC has already exceeded 200 billion USD. Without opening the capital account, the internationalization of the RMB faces structural obstacles: without sufficient RMB circulating overseas, it is impossible to form a deep RMB asset market; without a deep market, it is impossible to attract central banks from various countries to use RMB as a reserve currency.

The dilemma of "which came first, the chicken or the egg" is difficult to break through with traditional paths. However, stablecoins offer a new possibility: through digital tokens, it is possible to create an international circulation mechanism for the RMB without fully opening the capital account. More importantly, stablecoins can not only serve the internationalization of the RMB but can also become a tactical tool to dismantle the dollar hegemony system.

The key lies in correct positioning: it is unrealistic and unnecessary to challenge the dominance of the dollar market in the short term, but weakening its hegemonic foundation is both possible and urgent. China can adopt a "strike at the weakness while avoiding the strong" strategy—facing direct confrontations in areas where the dollar is strongest (liquidity, network effects) but seeking breakthroughs in its most vulnerable links (excessive financialization, abuse of sanctions).

3 Three Arrows at Once: The Strategic Framework for China's Stablecoin

Based on the analysis above, I propose that China should simultaneously promote three types of stablecoins to form a mutually supportive and functionally complementary system:

The first arrow: Offshore Renminbi Stablecoin (SRMB). This is the most direct but also the most limited option. Digital tokens pegged to the offshore Renminbi can serve trade settlements along the "Belt and Road" initiative, particularly in areas with traditionally inadequate banking services. Through smart contracts, functions such as trade financing and supply chain finance can be realized, reducing the financing costs for small and medium-sized enterprises.

However, it must be recognized that there are limitations: the scale of SRMB is constrained by the total amount of offshore renminbi, making large-scale expansion difficult in the short term. More importantly, it primarily serves trade partners who are already willing to use renminbi, which has limited appeal for attracting new users. Therefore, SRMB is more of a defensive tool to ensure that existing renminbi settlement is not eroded by other stablecoins.

Second Arrow: China’s version of the dollar stablecoin (Panda-USD). This is the most strategic design. China currently holds about $700 billion in U.S. Treasury bonds, which often yield only meager coupon returns. Worse still, these reserves face valuation risks stemming from changes in U.S. monetary policy, as well as political risks of being frozen in extreme situations. Instead of letting these reserves remain as "dead money," it is better to activate them as productive capital.

The innovation of Panda-USD lies in its dual-function design. On one hand, it is a stablecoin fully backed by U.S. Treasury bonds, technically flawless. On the other hand, it can serve as a financing tool for Chinese enterprises' overseas development. The specific operational mechanism is as follows:

Chinese companies can obtain low-interest loans from the Panda-USD reserve pool by mortgaging assets or future project revenues when undertaking overseas projects. The interest rate can be set slightly higher than the yield on U.S. Treasury bonds, for example, 50-100 basis points higher. This can cover operational costs and risks while being much lower than the financing costs for companies in the international market. Companies that obtain Panda-USD loans will naturally promote the use of Panda-USD during the project implementation process — paying suppliers, contractors, employee salaries, etc.

This creates a positive cycle: China's U.S. Treasury bond reserves are no longer static "dead money," but have transformed into "live water" that supports the global expansion of Chinese enterprises. Companies have obtained low-cost financing, which has driven the actual use of Panda-USD, expanding its acceptance and circulation. The profits generated by the projects will partially flow back in the form of Panda-USD, enhancing the sustainability of the entire system.

More importantly, this arrangement puts the United States in a moral quandary. If one opposes Panda-USD, it is equivalent to opposing China’s use of U.S. Treasury bonds to support global development—bonds that were bought with China’s own hard currency. If Chinese companies use Panda-USD to build infrastructure in Africa, invest in clean energy in Latin America, and develop the digital economy in Southeast Asia, what position does the United States have to oppose this? These are all legitimate business activities that promote global development.

There is another possibility, using the U.S. Treasury bonds held by China to support stablecoins pegged to the renminbi or Hong Kong dollar, bringing the reserve assets of the renminbi and Hong Kong dollar closer to USDT and USDC, which is beneficial for the promotion of renminbi and Hong Kong dollar stablecoins.

Third Arrow: Global Coin - Strategic Core. This is where the entire system's innovation lies and is also the key to long-term game-changing. Global Coin is anchored to a basket of currencies, but its significance goes far beyond a simple synthetic asset.

The composition of the currency basket must reflect strategic foresight rather than simply reflect the current situation. My suggested initial weight distribution is: 28-30% for the US dollar, 25% for the Chinese yuan, and 25% for the euro, which together account for about 78-80%. The remaining 20-22% is allocated to: 5-6% for the Japanese yen, 4-5% for the British pound, 3-4% for the Saudi riyal, 2-3% for the Indian rupee, 2-3% for the South Korean won, 2-3% for the Singapore dollar, and 2-3% for the Swiss franc.

This weight design has profound considerations. First, setting the weight of the Renminbi close to the levels of the Euro and the US Dollar reflects expectations for the future international currency landscape. This is not the reality today, but it may be the reality in 10-15 years. Through the weight setting of Global Coin, we are shaping expectations and guiding the future.

Secondly, including the Saudi Riyal has special strategic significance. Although Saudi Arabia's economy is not very large, as the world's largest oil exporter and OPEC leader, its currency choice is emblematic. If Saudi Arabia accepts trading oil in Global Coin, it would fundamentally shake the oil dollar system. Considering that China is already Saudi Arabia's largest oil buyer, this arrangement is not impossible.

Astute readers will notice that the Russian Ruble is absent from this list. This is not a disregard for Russia's status as a major energy exporter and a member of the BRICS nations, but rather a pragmatic consideration based on the current international situation. Including the Ruble at this stage would bring unnecessary politicization risks to Global Coin, potentially hindering its promotion in key markets.

But this does not mean a permanent exclusion. The design of Global Coin should include a dynamic adjustment mechanism, with a review of members and weights every two years. The review criteria should be objective and transparent, including: trade volume, GDP size, currency stability, financial market depth, use of international reserves, etc. When international circumstances change and certain currencies meet the objective standards, they should be able to join through specified procedures. This mechanism design maintains flexibility while avoiding politicization.

In fact, not including the ruble for the time being may be beneficial for both Russia and China. For Russia, it can continue to deepen its bilateral local currency settlement arrangements with China, which are less affected by external interference as they do not involve third parties. For China, it can avoid having Global Coin labeled as an "anti-American alliance" from the start. The success of Global Coin requires broad international acceptance, and premature geopolitical framing could undermine this goal.

To ensure the success of Global Coin, the Chinese government should take decisive measures, the most critical step is: to grant Global Coin the status of "legal tender" in foreign trade, requiring all Chinese enterprises to unconditionally accept Global Coin in international trade (it must be accepted, not just accepted). This is not a suggestion, but a compulsory requirement. The specific implementation can be carried out in phases:

Phase One (within 6 months): All state-owned enterprises and listed companies must accept Global Coin payments, with a certain percentage set, for example, accepting up to 20% of the contract amount settled in Global Coin. At the same time, enterprises that accept Global Coin will be granted certain tax incentives or export tax refund conveniences.

Phase Two (within 1 year): Expand to all import and export enterprises, with the acceptance rate increased to 50%.

Phase 3 (within 2 years): Global Coin becomes an officially accepted currency alongside the Renminbi, and all foreign economic activities must accept it.

This mandatory promotion seems tyrannical, but it is actually necessary. The establishment of network effects requires reaching a critical mass, and relying solely on spontaneous market selection is too slow. China's annual import and export trade volume has exceeded 6 trillion USD; if 30-50% of that were settled using Global Coin, it would immediately create a trillion-level circulation, sufficient to establish Global Coin's international status.

More importantly, this will create a demonstration effect. When international suppliers find that doing business with China using Global Coin is more stable, convenient, and advantageous, they will naturally consider using Global Coin for transactions with other countries to reduce exchange costs. Especially for those countries that export raw materials to China and import finished products from China, using Global Coin can significantly simplify the settlement process.

The governance structure of Global Coin must reflect inclusiveness and professionalism. It is recommended to establish a "Global Coin International Governance Committee," with its headquarters located in international financial centers such as Hong Kong or Singapore. Each currency in the "basket" should send a representative, but voting rights can be allocated according to the weight of the currency. The voting mechanism could consider a design similar to the U.S. Senate's two chambers, where key decisions (such as weight adjustments) require both weighted voting and the number of representatives voting to pass, ensuring that no single institution or country can manipulate the process.

4. Execute Strategy: Avoid Fragmentation Traps

When promoting the stablecoin strategy, China must avoid repeating the mistakes of Europe. Europe has multiple countries individually advancing digital currency projects, resulting in a dilemma of inconsistent standards and mutual competition. China's advantage lies in its ability to conduct top-level design to ensure strategic coordination.

Specifically, the issuance rights of "fiat stablecoins" should be strictly controlled. Other financial institutions can participate by investing, providing services, etc., and share profits, but they cannot issue independently. This avoids market fragmentation, ensures that network effects are concentrated, and facilitates regulation and risk control. Currently, there are already 200 institutions applying for stablecoin licenses in Hong Kong, which is a very bad sign of fragmentation. Strict control of fragmentation must be the major premise of China's stablecoin grand strategy; otherwise, there will be no future.

For other licensed stablecoin issuers, three points should be clarified: First, other stablecoins beyond the three categories mentioned above do not enjoy legal status, meaning they are not "mandatory to accept," but can be used within compliance; Second, all licensed issuers should act as agents for the above three types of stablecoins, issuing these three stablecoins while receiving corresponding benefits; Third, in any payment scenario involving a stablecoin issuer, the above three types of stablecoins must be unconditionally accepted (but are not limited to) as payment tools.

For the implementation entity of Global Coin, it is recommended to adopt a model of "government guidance and market operation". Reducing geopolitical color is beneficial for international promotion. At the same time, mechanisms such as gold stocks should be used to ensure control at critical moments.

The technical architecture must balance innovation and compatibility. The three stablecoins mentioned above can all be issued based on existing mature public chains such as Ethereum, ensuring technical reliability and ecological compatibility. At the same time, develop a self-controllable, efficient dedicated chain as a backup and upgrade path. The key is to achieve cross-chain interoperability, allowing users to switch seamlessly between different technical platforms. Here, we want to emphasize the importance of issuing on public chains: without this step, not only will the progress of Global Coin be much slower or even impossible, but it will also greatly increase the risk of being besieged due to geopolitical issues.

In addition, making good use of the loan mechanism of Panda-USD has additional strategic value. Through loan contracts, China can require borrowing enterprises to use Panda-USD in a specified proportion of their transactions, and can even require their upstream and downstream partners to open Panda-USD accounts. This "viral" promotion is more effective than any marketing. At the same time, the loan approval process is also a process of screening and nurturing participants in the Panda-USD ecosystem. Prioritizing support for projects in strategic areas and key industries can ensure that the use cases for Panda-USD cover the most valuable economic activities.

It is important that this loan support must be market-oriented and sustainable. It should not turn into a disguised subsidy or aid, as this would distort market mechanisms and invite international criticism. The key is to find a balance between commercial viability and strategic objectives—interest rates must be low enough to attract quality enterprises, but high enough to cover risks and operational costs.

5. Time Window and Historical Opportunities

Now is the best time to advance this strategy. The introduction of the U.S. GENIUS Act has exposed its anxiety about the uncontrolled development of stablecoins. However, the jurisdiction of this act is limited to the United States, and it has no reach over stablecoins issued overseas. This creates a valuable time window for China.

More importantly, global dissatisfaction with the dollar's hegemony is accumulating. From Europe's INSTEX system to India's rupee-ruble trade with Russia, countries are seeking ways to circumvent dollar sanctions. However, these efforts are mostly limited to bilateral arrangements and lack scalability. China's Global Coin can provide a multilateral solution, integrating these disparate efforts into a unified platform.

The development of technology has also reached a critical point. After years of development, blockchain technology has matured in terms of performance, security, and user experience. More importantly, the prosperity of the DeFi (Decentralized Finance) ecosystem provides abundant application scenarios for stablecoins. Stablecoins are no longer just payment tools, but rather the infrastructure of the entire digital financial ecosystem.

6. Geopolitical Considerations: Balancing Between Idealism and Realism

The choice of currencies by Global Coin reflects a fundamental principle: to maintain strategic pragmatism while pursuing monetary justice. The decision not to include the ruble may disappoint some, as they see it as yielding to Western pressure. However, the essence of strategy lies in distinguishing priorities— the primary goal is to establish a viable alternative system, rather than to create too many enemies from the outset.

China and Russia can deepen financial cooperation through other mechanisms. For example, a direct exchange mechanism between the SRMB and the digital ruble can be established to bypass the dollar intermediary. Regional payment arrangements can also be promoted within the framework of the Shanghai Cooperation Organization. These bilateral and regional arrangements can develop in parallel with Global Coin, complementing each other.

It is important to maintain strategic focus and patience. Rome was not built in a day, and the Bretton Woods system also underwent years of negotiation. Global Coin needs time to prove its value and neutrality. Once credibility and network effects are established, expanding the membership will become a natural progression. By then, it will not be us inviting others to join, but rather others requesting to join.

7. Saudi Factors: Leveraging the Pivot of Energy Finance

Incorporating the Saudi Riyal into the Global Coin basket seems to give it an excessively high weight (3-4%, compared to Saudi Arabia's global GDP share of around 1%), but it is actually a highly visionary strategic arrangement. This sends a clear signal to Saudi Arabia and the entire Gulf region: they will have a seat at the table in the international financial system of the post-oil era.

China can propose a comprehensive plan: to purchase Saudi oil with Global Coin, while supporting Saudi Arabia's "Vision 2030" transformation plan, including the financing and construction of projects like NEOM city. If Saudi Arabia agrees to accept Global Coin as one of the currencies for oil pricing and settlement (even for just a portion of contracts), it will create a tremendous demonstration effect.

This is not about immediately ending the petrodollar, but rather providing a gradual transition path. Oil can be priced in both dollars and Global Coin, allowing the market to adapt gradually; for example, the Shanghai Futures Exchange could price in both dollars and Global Coin. However, once this door is opened, the monopoly of the petrodollar will be broken. Other commodities—iron ore, copper, grain, etc.—may also follow suit and adopt Global Coin pricing.

8. Expected Resistance and Response Plan

The United States will inevitably take countermeasures against China's stablecoin strategy, but our three-arrow strategy makes it difficult for them to find a leverage point. If they attack the SRMB, the impact will be limited and will instead promote the independence of the RMB settlement system. If they ban Panda-USD, it is equivalent to acknowledging that the dollar needs protectionism, which undermines the credibility of the dollar. Especially the loan mechanism of Panda-USD makes America's opposition seem absurd—does America want to ban China from using its own held US Treasury bonds to provide financing for global development? This is completely untenable both morally and logically.

The U.S. countermeasures against Global Coin will be more intense, as this directly challenges the structural position of the dollar. Possible countermeasures include:

1 Technology blockade: Prohibit American companies from providing technical services for Global Coin. Response: Prepare for technical self-sufficiency in advance while maintaining cooperation with technology companies in Europe and Asia.

2 Market Access: Global Coin is prohibited from being used within the United States. Response: Initially not seeking the U.S. market, focusing on the Asia, Africa, Latin America, and European markets.

3 Allies put pressure: demanding that allied countries jointly resist. Response: This is precisely the wisdom of setting the weight of the RMB and Euro close to that of the US dollar - Europe has no motivation to resist an international currency that gives the Euro a 25% weight.

4 Legal Litigation: Suing for various reasons. Response: Strict compliance, technical transparency, international governance, making it difficult for litigation to find a foothold.

Chinese companies are required to accept the policy of Global Coin, and the United States may challenge this at the WTO and other venues. However, China can defend itself by stating that this is a measure to facilitate international trade, similar to how the Euro must be accepted within the Eurozone. Moreover, Global Coin contains 30% of USD composition, which in fact also promotes the use of the dollar.

A more likely scenario is that the United States will adopt a "salami slicing" strategy, gradually applying pressure through technical standards, compliance requirements, and market access. In response, China should prepare multiple contingency plans: technically, maintain open standards that can connect with international mainstream at any time; in compliance, adopt a "beyond standards" strategy, being stricter than the U.S. in areas like anti-money laundering to occupy a moral high ground; in the market, implement a strategy of encircling the cities from the countryside, promoting first in emerging markets and Belt and Road countries, and after accumulating a user base, then entering developed markets.

9. Conclusion: From Currency Sovereignty to Currency Justice

China's stablecoin strategy is essentially an attempt to revise the post-World War II international monetary system. This system has faced the "Triffin Dilemma" since its inception—where the US dollar has to serve American interests while also fulfilling international responsibilities, which are inevitably in conflict. The past 70 years of history show that when conflicts arise, the US always prioritizes its own interests.

Stablecoins offer the possibility to overcome this predicament. Through multilateral arrangements like Global Coin, an international monetary system with no single point of failure can be created. This is not about eliminating the US dollar, but rather about removing the monopoly of any single currency. In this sense, what China is promoting is not just monetary technological innovation, but also the return of international monetary justice.

Forcing enterprises to accept Global Coin, China is not engaging in monetary hegemony, but rather creating a true international currency. When the US dollar became the international currency, it relied on the Marshall Plan and the institutional arrangements of the Bretton Woods system. Today, China promotes Global Coin, relying on the combination of trade volume, technological innovation, and governance mechanisms.

Setting the weight of the Renminbi in Global Coin close to that of the US dollar and the euro is not a display of arrogance, but rather a correction of the current international weight of Renminbi assets and a reasonable expectation for the future. China is already the world's largest manufacturer, largest trader, and the second-largest economy, and the Renminbi should rightfully occupy an appropriate position in the international monetary system. Through the transitional arrangement of Global Coin, the goal of Renminbi internationalization can be achieved in advance without fully opening the capital account.

Just as Keynes proposed the Bancor scheme at the Bretton Woods Conference, attempting to create a true international currency, it was vetoed by the United States relying on its strength. Eighty years later, advancements in technology and changes in the balance of power have made this ideal possible. China should seize this historical opportunity, not to establish the hegemony of the renminbi, but to put an end to any form of monetary hegemony.

While the United States is busy building walls to maintain vested interests, China should be busy paving roads to connect the world. The endpoint of this road is a truly multipolar and fair new international monetary order. Stablecoins are the cornerstone of paving this road.

(Author Wang Yang is a mathematics professor, Vice President of the Hong Kong University of Science and Technology (2020-2025), and Chief Scientific Advisor of the Hong Kong Web3 Association. Bai Liang is the CEO of Zero One Think Tank.)