People are starting to wake up to the power that the GENIUS Act passing in the United States has. When it comes to dominant currencies, this simply made the US dollar more powerful.
It is a situation that is starting to echo through the leadership in other economic zones. The EU and China are two entities that are starting to fear what this means for their futures. When it comes to dominating the monetary system, the dollar's large lead is rapidly becoming insurmountable.
This is pushing leaders to seek alternatives to what is taking place. The yuan and euro are not international currencies, causing them to lag far behind the dollar. With the expectation that stablecoins will start to dominate the next decade, what does it mean if the overwhelming percentage of them are US dollar denominated?
Both the EU and China operate from an authoritarian point of view on these matters.
The EU is big into regulation. This is what the Europeans are known for. It has caused them endless loss yet the zone keeps tightening the reins. Business is constricted, with costs going up. The continent is basically dead when it comes to technology, with both the US and China far outpacing it.
Then we have the CCP which is known for its dictatorial nature. The structure of China is very simple, especially under Xi. It is top-down and everyone must fall in line. Anyone who questions this can reference Jack Ma to see how even the biggest can be brought to their knees.
It is not surprising that both decided to pursue the Central Bank Digital Currency (CBDC) route.
China was the first to introduce this, something that was claimed to be a massive success within the country. The EU is following behind, expected to release the CBDC version of the euro in the next few months.
As they say, sometimes the best laid plans go awry.
Both are having to rethink this due to the passage of the GENIUS Act. The potential ramifications are just now being realized.
To me, this is no surprise. It is also a futile effort.
The US dollar's dominance will only continue to grow. As states in other articles, we are in the 2020s. The dollar is already digital with only a miniscule percentage of the transactions done using banknotes.
Hence, we operate under the laws of the digital realm. Here is where winners are determined by the network effects. One this is achieved, it is near impossible to break. Just look at all the moments to delete Facebook over the years. Meta still has near (or over) 3 billion MAUs.
China is notably worried because it is trying to maintain its place in the world while also closing the gap with the US. If the world shifts to the US dollar in even greater numbers, this circumvents the power of the CCP.
For Beijing, this shift is deeply unsettling. Stablecoins combine the liquidity of dollars with the portability of blockchain, bypassing conventional capital controls. Therefore, that undermines one of the Communist Party’s main economic and political power levers.
Export-oriented firms might eagerly adopt stablecoins to cut transaction costs. Notably, dollar tokens could be used daily, edging out the renminbi in key markets. CFR calls this risk “existential” for Chinese monetary sovereignty.
Since there are two global players, this is a concern if one of them is hindered. China does not want this to happen.
So how does the CCP expect to counter this? Obviously, by trying to place more control over the system.
China’s record shows a preference for harnessing blockchain under tight state oversight. The central bank launched the e-CNY to preempt private tokens, but adoption has been sluggish. Alipay and WeChat Pay still dominate China’s digital payments.
The CCP is operating from the false narrative that governments can dictate monetary preference. This is true when the legal tender situation is at hand. However, leave the confines of one's country and it is a different ballgame.
Merchants tend to opt for money that best serves their needs. The challenge with anything outside the dollar is the infrastructure that is in place. For example, what happens when a company is sitting on $50 million in USD that it needs to use 1 or 2 months in the future? It is not going to swap it into the local currency. Instead, it buys T-bills as a parking mechanism.
This is just one example of how liquidity in US Treasuries fosters even more USD adoption. The network effects are in play on many different levels. It is the challenge before the EU and China.
We are looking at a lot more than just stablecoins. However, this only expands upon an already powerful position the USD had.
For all the talk of the BRICS, there is really no alternative they propose.
