Former Vice Governor of the People's Bank of China: The US led cryptocurrency hegemony strategy poses multiple threats to China's financial security

On February 22, 2025, the Academic Conference on the Development and Governance of China's Digital Economy was held at Nankai University. Former Vice Governor of the People's Bank of China and President of Nankai University, Chen Yulu, delivered a keynote speech titled "The Rise and Challenges of Cryptocurrency". Chen Yulu stated that the US led cryptocurrency hegemony strategy poses multiple threats to China's financial security. One is capital outflow and exchange rate pressure. The long-term appreciation trend of encrypted 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 dominant position of the US dollar in the global monetary system through cross-border payment convenience and value storage functions. This undoubtedly will squeeze the valuation and internationalization space of the Chinese yuan. In addition, the cryptocurrency channel dominated by the US dollar has become a new path for capital flight. In recent years, the large-scale allocation of Bitcoin by top US companies and the large-scale financing wave of on exchange cryptocurrency ETFs have produced a strong "demonstration effect", which may attract some domestic capital to flow out through grey channels. The second is the accumulated industrial competitive advantage formed by DeFi regulatory arbitrage. The relatively loose regulatory and tax policies in the United States attract global DeFi innovation resources, thereby reaping more full chain technological dividends from the bottom standards 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 capability resources. On the one hand, the United States is currently in a leading position in innovation in areas such as ZKP and Layer2, while the European Union is also gaining a network effect of a unified large market through MiCA integrated regulation, while setting technological barriers. China needs to be vigilant and guard against the risk of losing the power to formulate standards in the cryptocurrency industry. On the other hand, China is facing pressure to relocate innovative resources in the blockchain industry: the EU's carbon emissions policy for the cryptocurrency industry and tax incentives for US mining sites have led Chinese mining companies and blockchain venture capital firms to shift to Central Asia, the Middle East, and the United States, which objectively hinders the innovation capability and computing power security of the domestic blockchain industry. The fourth is the threat of US cryptocurrency hegemony. Firstly, the United States is accelerating the gradual integration of mainstream cryptocurrency assets into its financial hegemony system. Once this trend is established, it will inevitably squeeze China's strategic development space in the field of digital finance in the future. Secondly, after the Russia-Ukraine conflict, the United States government, together with the United Kingdom, the United Arab Emirates and other countries, imposed large-scale 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. The power of digital financial hegemony is emerging. Finally, the Trump administration's push for the Bitcoin Strategic Reserve Plan and resistance to foreign sovereign digital currencies have intensified the confrontation between China and the United States in the field of digital currencies. Of course, crypto assets represented by Bitcoin have now shown a serious market foam, and continuous appreciation is difficult to sustain. Once the foam bursts, it will be a huge blow to the US crypto asset hegemony strategy. We must maintain a clear understanding and strategic determination in this regard, unwaveringly adhere to the value concept of financial services for the real economy, and firmly follow the path of building a strong financial country with Chinese characteristics.