CBDC vs stablecoin: Who will win global currency dominance in the future?

As consumers give up physical cash and the US under Trump's administration supports Crypto Assets, global monetary authorities are facing evolutionary pressure. The US government supports the development of decentralized, privately managed Digital Money (stablecoin) referenced to the US dollar, while the European Central Bank and the People's Bank of China have chosen the opposite path: developing central bank digital currencies such as the digital euro and digital yuan (CBDC) to consolidate their control over the flow of money. These two radically different approaches reflect the global competition for future payment and financial influence. Bloomberg has published an in-depth analysis of the essential differences, potential risks, and regulatory status of CBDC and stablecoins.

Global Currency Strategy Discrepancies: The Camp Division of CBDC and Stablecoins

In the wave of Digital Money, monetary authorities in various countries have adopted two entirely different strategies:

• US Camp (Stablecoin Dominant): The Trump administration clearly opposes the digital dollar CBDC and instead supports private institutions issuing stablecoins pegged to the dollar. They firmly believe that incorporating dollar-backed stablecoins into mainstream finance will strengthen the US's dominant position in global payments and usher in a new era of “dollarization.”
• Eurasian Bloc (CBDC Dominant): Represented by the European Central Bank and the People's Bank of China, choosing to develop a digital version of their national currency (CBDC) to counter the challenge posed by private crypto assets that may threaten their control over the flow of money in the national economy.

Although stablecoins and central bank digital currencies are relatively new and untested, the competition surrounding them has become a grand game concerning global financial influence.

What are CBDC and stablecoin?

(Source: Bloomberg)

Although both are used for digital transactions, CBDC and stablecoins are fundamentally different.

Security and Risks:

CBDC theoretically carries the lowest risk because it directly represents the liabilities of the Central Bank. In contrast, stablecoins, as private currencies, always carry a certain level of risk. For example, the collapse of the algorithmic stablecoin TerraUSD/Luna in 2022 caused a loss of 60 billion dollars; in 2023, Circle's USDC also briefly decoupled to 0.85 dollars due to reserves being involved in the collapse of Silicon Valley Bank.

The growth of stablecoins and potential risks

After President Trump signed the GENIUS Act to establish a regulatory framework, the development of stablecoins in the United States has entered a new era of “dollarization.” Research from Artemis shows that this act has led to a 70% increase in stablecoin trading volume. In addition to being used by crypto investors to transfer funds between different crypto assets or between various mainstream CEXs, stablecoins are also seen as a way to enhance the speed and efficiency of transactions within the traditional banking system in the United States.

(Source: Bloomberg)

However, the widespread adoption of stablecoins faces many challenges and risks:

• Regulatory risk: If the government fails to implement the same control and transparency requirements as banks, a large-scale shift to stablecoins could lead to widespread money laundering, tax evasion, and fraud.
• Centralization Risk: The largest stablecoin Tether (USDT) is pegged to the US dollar, but its issuer is a company based in El Salvador, whose jurisdiction is not a global financial center.
• Network capacity risk: Although newer blockchains like Solana aim to improve transaction speed, blockchains like Bitcoin and Ethereum have previously experienced prolonged wait times and high fees due to sudden spikes in transaction activity.
• Hacker and Thief Risks: Crypto wallets are common targets for hackers and thieves; once stolen, consumers have almost no recourse.

Global progress and potential drawbacks of CBDC

Currently, no major economy has fully launched a central bank digital currency (CBDC). Emerging market countries such as the Bahamas, Nigeria, and Jamaica have been the first to launch digital money. China's digital renminbi is still in the pilot phase, while the European Central Bank is expected to launch the digital euro in mid-2029.

The Driving Force of CBDC: In addition to resisting the threat of private crypto assets, CBDC can also reduce the cost of digital payments, accelerate settlement speed, and potentially force payment service providers like Visa and Mastercard to lower their fees by increasing competition. At the same time, CBDC is also a means for Europe to cope with geopolitical risks and avoid over-reliance on American payment networks.

Disadvantages of CBDC:

• Financial Intermediary Risk: Since CBDC is a liability of the Central Bank, commercial banks cannot use it as capital for lending. Therefore, a surge in the usage of CBDC may undermine the critical role of banks in providing financing to businesses and individuals. The European Central Bank plans to set a holding limit for the digital euro (most commonly €3,000) to address this risk.
• Privacy Risks: Each digital payment leaves a trace, raising public concerns about government surveillance. Although central banks in various countries claim to balance privacy and transparency, this has always been a major obstacle faced by CBDCs.

Conclusion

The competition between CBDC and stablecoins is not just a choice of technological routes, but also a struggle for the future currency's dominance and financial control between two major global camps. The United States consolidates the dollar's position globally by supporting stablecoins, while Europe and China attempt to maintain national currency sovereignty and financial stability through CBDC. As the cryptocurrency market matures, market participants and governments will learn and adjust in practice. However, whether it is CBDC or stablecoins, transparency, security, and the impact on the banking system will be core issues that must be addressed before large-scale promotion.