Opinion: China’s Approach to Stablecoins Should Focus on Their Risks

The recent enthusiasm for stablecoins—a type of privately issued digital currency pegged to stable assets like the US dollar or gold—has diminished, with financial leaders such as Eddie Yue, CEO of the Hong Kong Monetary Authority, warning that many stablecoin initiatives are still conceptual and often lack substance or practical risk management plans. Yue’s caution comes amid concerns that the sector’s speculative nature requires more regulatory attention, as most proposals tout potential benefits like improved cross-border payments and Web3.0 development, but fall short on viable implementation strategies and awareness of associated risks. [para. 1]

China's financial policy continues to emphasize that the financial system should serve the real economy. For stablecoins, this means their true nature and the sectors they benefit must be thoroughly understood, and their risks must be proactively mitigated. The primary consideration is whether stablecoins offer genuine utility beyond speculation. [para. 2]

Stablecoins operate by linking their value to traditional assets, positioning themselves as bridges between cryptocurrencies and fiat currencies to avoid the volatility of coins like Bitcoin while offering blockchain-based payment solutions. However, according to a June Bank for International Settlements report, stablecoins currently fall short of the essential qualities expected of fiat currencies, failing in areas like integrity, singleness, and elasticity. Their status as “real” currencies remains questionable. [para. 3]

Tracing the origins of currency, it started as a means of value exchange tied to real economic activity, but with technological advancement, money became increasingly virtual. Stablecoins represent an even more abstract form of value, mainly used in crypto trading and limited tokenization of assets. Their potential to serve the broader real economy is still highly uncertain. [para. 4]

Pan Gongsheng, governor of the People’s Bank of China, has noted that innovations such as blockchain and distributed ledgers are reshaping payment systems, offering faster settlements but also presenting regulatory challenges, especially as cross-border payments become more complex and technologically driven. [para. 5]

Despite strong advocacy for stablecoins in cross-border payments, the existing payment and settlement systems, which are centralized and rigorously regulated, already satisfy the legitimate needs of formal finance, including high transaction speeds and security. Even prominent crypto exchanges like Binance still rely largely on these traditional systems. The drive for decentralized cryptocurrencies often appears aimed more at regulatory evasion than genuine technological progress. [para. 6]

China’s central bank has proactively improved international payment channels, such as through currency swaps and the mBridge digital currency project, diminishing the necessity for stablecoins in these areas. [para. 7]

Domestically, China boasts world-leading e-payment infrastructure, with speedy, convenient cashless transactions. Cross-border limitations stem not from technology, but from capital controls and anti-money laundering requirements. Any attempt to circumvent these with stablecoins introduces significant financial risks, rather than reducing them. [para. 8]

Stablecoins have also sparked division globally and within China. Still, experts generally agree that China should treat stablecoins with caution, prioritizing risk management. Potential risks include undermining anti-money laundering efforts, threatening financial stability, hindering effective monetary policy, weakening capital controls, and endangering investor protection. [para. 9]

Some advocate for stablecoins as tools to bolster the yuan’s internationalization, but the consensus is that true progress lies in leveraging China’s technological strengths and carefully reforming policies—especially around currency convertibility—rather than rapid adoption of stablecoin systems. [para. 10]

Authorities must conduct thorough research and monitor international stablecoin regulation, using regions like Hong Kong as policy laboratories, and drawing lessons from global experiences. [para. 11]

Given the vested interests involved, regulators should actively shape the evolution of stablecoins, ensuring that they support the real economy and do not fuel speculation or financial crime. The key is robust supervision and a relentless focus on public benefit over hype or unregulated growth. [para. 12]