Former Deputy Governor of the People's Bank of China: The U.S.-led crypto asset hegemony strategy poses multiple threats to China's financial security

[Former Deputy Governor of the People’s Bank of China: The U.S.-led Crypto Asset Hegemony Strategy Poses Multiple Threats to China’s Financial Security] On February 22, 2025, the Academic Annual Conference on the Development and Governance of China’s Digital Economy was held at Nankai University. Chen Yulu, former Deputy Governor of the People’s Bank of China and President of Nankai University, delivered a keynote speech entitled “The Rise and Challenges of Cryptocurrency”. Chen Yulu said that the U.S.-led crypto asset hegemony strategy poses multiple threats to China’s financial security. First, capital outflows and exchange rate pressures. The long-term appreciation trend of crypto assets represented by Bitcoin against international currencies such as the US dollar, as well as the rapid expansion of the trading scale of US dollar stablecoins, have further strengthened the dominance of the US dollar in the global monetary system through cross-border payment convenience and value storage functions, which will undoubtedly squeeze the valuation and internationalization space of the RMB. In addition, the dollar-dominated crypto channel has become a new path for capital flight. In recent years, the large-scale allocation of bitcoin by leading companies in the United States and the large-scale financing wave of on-exchange cryptocurrency ETFs have produced a strong “demonstration effect”, which may attract some domestic capital to outflow through gray channels. Second, DeFi regulatory arbitrage has formed a cumulative industrial competitive advantage. The relatively relaxed regulatory and tax policies in the United States attract the inflow of global DeFi innovation resources, and then reap more full-chain technology dividends from the underlying standard to the application layer. After long-term accumulation, it will form a competitive advantage over China’s digital financial infrastructure technology in the future. The third is the competition for underlying technical standards and innovation resources. On the one hand, the United States is currently in a leading position in innovation in ZKP, Layer 2 and other fields, while the European Union is also gaining the network effect of a unified market after integrating supervision through MiCA, and at the same time setting up technical barriers. China needs to be vigilant and guard against the risk of the right to set industry standards for crypto assets. On the other hand, China is facing the pressure of relocation of innovation resources in the blockchain industry: the carbon emission policy of the EU crypto industry and the tax incentives for mining farms in the United States have made Chinese mining enterprises and blockchain venture capital companies have a tendency to transfer to Central Asia, the Middle East and the United States, which is objectively not conducive to the innovation ability and computing power security of the domestic blockchain industry. Fourth, the threat of US crypto asset hegemony. First of all, the United States is accelerating the gradual integration of mainstream cryptocurrency assets into its financial hegemony system, and once this trend is established, it is bound to squeeze China’s strategic development space in the field of digital finance in the future. Secondly, after the Russia-Ukraine conflict, the U.S. government, together with the United Kingdom, the United Arab Emirates and other countries, imposed large-scale long-arm financial sanctions on the Russian government, institutions, and individuals in the field of cryptocurrency, seized and confiscated a large number of cryptocurrency assets, and arrested relevant practitioners, and the power of its digital financial hegemony is initially emerging. Finally, the Trump administration’s push for a Bitcoin strategic reserve plan to boycott foreign sovereign digital currencies has also intensified the confrontation between China and the United States in the field of digital currencies. Of course, the crypto assets represented by Bitcoin are currently in a serious market bubble state, and the continuous appreciation is unsustainable, once the bubble bursts, it will be a huge blow to the US crypto asset hegemony strategy. In this regard, we must maintain a sober understanding and strategic determination, unswervingly adhere to the value concept of financial services for the real economy, and firmly follow the road of financial power with Chinese characteristics.