Reevaluating stablecoin policies: China's strategic choices in the context of global volatility

In recent months, while major countries have accelerated the development of legal frameworks for cryptocurrencies and stablecoins, China has taken a different path—steadfastly pursuing the development of a digital renminbi and actively restricting such activities. After the meeting on 11/28 between the People’s Bank of China and 13 related ministries, this stance became even clearer: stablecoins are regarded as a form of virtual currency, and all related issuance and trading activities are prohibited. This is not a random decision but the result of a sober analysis of long-term strategic factors.

Non-dollar Stablecoin Markets: Why Are Opportunities Disappearing?

In fact, the US dollar stablecoin (such as USDT, launched in 2014), has dominated over 99% of the global crypto asset trading market. This figure is not due to superior technology but because of the strength of the US dollar itself—the international reserve currency with the most advanced payment system.

This lesson shows that any stablecoin pegged to a different currency will be very difficult to compete with at the international level. If a country issues a stablecoin modeled after the US without a strong application ecosystem and attractive advantages for traders, it will be an effort in vain. Moreover, when countries are committed to control, maintaining a non-dollar stablecoin becomes even more impossible.

For China, instead of pursuing a dead-end path, it is better to focus on the development of the digital renminbi—a fully controlled solution that does not depend on the international payment system.

Hidden Challenges in the US Legal Framework

When the US passed the stablecoin law (effective from 07/18), the oversight requirements were very high: reserves must be 100% and audited monthly, customer accounts must be held at US banks, issuing organizations must comply with KYC, AML, FTC…

However, this framework still has vulnerabilities:

Risks to reserve value: The reserve assets mainly consist of government bonds, which fluctuate in value. When bond prices fall, reserve shortages may occur.

Inconsistency among stablecoins: If different issuing organizations have different reserve structures, stablecoins will have different values, creating arbitrage opportunities—making oversight difficult.

DeFi issues: Allowing lending of stablecoins on decentralized platforms could lead to derivative stablecoins and issuance beyond limits.

What Happens When Stablecoins Are Legally Regulated?

An unintended consequence of legalizing stablecoins is that, once they are placed under strict regulatory oversight, it will inevitably involve participation from traditional financial institutions—banks, stock exchanges, funds…

These organizations could directly deposit funds onto the blockchain (tokenized deposits) and other financial products as RWA (Real World Assets). In this case, a tool born from decentralized needs would be replaced by tools controlled by banks.

This is a reversal that few realize: legalizing stablecoins could actually be a step that unintentionally destroys stablecoins.

This trend has already begun in the US and is difficult to stop. It shows that other countries mimicking the US to develop stablecoins is not a wise choice.

Why Can’t China Follow the US Path?

China has a leading advantage in mobile payments and the development of the digital renminbi. Developing a stablecoin modeled after the US does not add value and could introduce new risks.

Bitcoin, cryptocurrencies, and stablecoins can be traded globally 24/7 via borderless blockchain. While highly efficient, their strong anonymity and rapid transfer speed make it difficult to meet oversight requirements like KYC, AML, FTC. Risks of money laundering, fraud, and illegal cross-border transfers are real threats.

Furthermore, the US currently has control or significant influence over major blockchain systems, large exchanges, and the ability to trace, freeze, and seize accounts. If China develops a digital renminbi stablecoin similarly, it will not only struggle to compete with US dollar stablecoins but also risk making the digital renminbi dependent on the US system.

The consequences are: tax management of the country could be affected, foreign exchange controls could be monitored, and cross-border capital flows could be restricted. This directly threatens the sovereignty of the renminbi and the stability of the financial system.

China’s Solution: A Unique Path for the Digital Renminbi

In an increasingly complex international environment, China cannot simply pursue efficiency or cost reduction. National security must be prioritized.

While firmly restricting stablecoin activities and crypto speculation, China should focus on improving regulatory policies, enhancing traceability capabilities, increasing information sharing among ministries, and strictly cracking down on illegal activities related to cryptocurrencies.

Simultaneously, it is essential to accelerate the innovation and development of the digital renminbi, expand its application domestically and internationally, and create a leading advantage for the digital renminbi globally. This is China’s unique path—independent of the international payment system and not controlled by external forces.

This choice reflects a clear understanding: in an increasingly tense global financial world, long-term strategies must prioritize enduring benefits over immediate gains. Rejecting the stablecoin route is not conservatism but a calculated strategic decision.

Author: Wang Yongli, former Deputy Governor of the People’s Bank of China