The rapid rise of stablecoins has sparked a global conversation about the future of money, cross-border payments, and financial sovereignty. With regulatory milestones such as Hong Kong’s Stablecoin Ordinance taking effect on June 6, 2025, and the U.S. Senate passing a comprehensive stablecoin bill shortly after, the world is entering a new era of regulated digital currencies. Amid this transformation, a critical question emerges: Should China develop its own renminbi (RMB)-linked stablecoins, and if so, how?
As the second-largest economy and a leader in fintech innovation, China stands at a pivotal juncture. The People's Bank of China (PBOC) has already made strides with its digital RMB (e-CNY), but the debate over private stablecoins, deposited tokenized bank liabilities, and wholesale-retail dual-layer architectures remains central to shaping the future of global finance.
The Rise and Reality of Stablecoins
Stablecoins—cryptocurrencies pegged to stable assets like the U.S. dollar—are designed to offer price stability while leveraging blockchain technology for fast, low-cost transactions. Today, the global stablecoin market exceeds $250 billion, with over 99% tied to the U.S. dollar—dominated by USDT (Tether) and USDC (USD Coin).
This growth reflects strong demand from decentralized finance (DeFi) ecosystems and global users seeking efficient alternatives to traditional cross-border payments. However, the current model relies heavily on offshore regulatory arbitrage, avoiding compliance costs such as KYC (Know Your Customer), AML (Anti-Money Laundering), and capital adequacy requirements.
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While proponents tout up to 90% lower transaction fees, these savings largely stem from bypassing regulatory obligations rather than pure technological efficiency. Once stablecoins enter formal regulatory frameworks—as now mandated in jurisdictions like Hong Kong and the U.S.—they will inherit many of the same compliance and operational costs as traditional financial institutions. This shift could significantly reduce their cost advantage.
Moreover, stablecoins bring programmability and composability through smart contracts, enabling automated settlements and integrated financial services—an evolution beyond today’s API-based treasury systems. Their open, interoperable nature also enhances financial inclusion and global access.
But these benefits come with systemic risks.
Key Challenges: Stability, Sovereignty, and Systemic Risk
1. Monetary Policy Erosion
Private stablecoins operate outside the central banking system, potentially weakening monetary transmission. If widely adopted, they could displace central bank money, reducing control over liquidity and interest rates.
2. Financial Stability Threats
Most dollar-pegged stablecoins hold U.S. Treasury bills as reserves. While considered safe, a sudden liquidity shock in government debt markets could trigger a "run" on stablecoins, forcing mass asset sales and amplifying systemic risk. This creates a dangerous feedback loop between stablecoin liabilities and sovereign bond assets.
3. Digital Dollarization
With nearly all major stablecoins anchored to the U.S. dollar, their global use promotes digital dollar dominance, challenging monetary sovereignty in emerging economies and reinforcing existing imbalances in the international monetary system.
Three Models of Stablecoin Issuance
To address these challenges, three primary issuance models have emerged:
Model 1: Private Corporate Stablecoins (e.g., USDT, USDC)
Issued by private firms backed by high-quality liquid assets (HQLA), these tokens offer agility and innovation but pose significant regulatory and financial stability concerns. Their reliance on the dollar further entrenches U.S. monetary influence.
Model 2: Bank-Issued Deposit Tokens (e.g., JPM Coin)
These are tokenized commercial bank deposits—essentially digital IOUs issued by regulated banks. JPMorgan’s JPM Coin demonstrates success in institutional settlement, combining blockchain efficiency with traditional banking oversight.
Advantages include regulatory compliance and integration with existing systems. However, innovation may be limited by legacy infrastructure, and interoperability across banks remains a challenge.
Model 3: Wholesale-Retail Dual-Layer Architecture
This model preserves the traditional two-tier financial system:
- Wholesale layer: Central banks issue wholesale CBDCs for interbank settlements.
- Retail layer: Licensed financial institutions issue retail stablecoins backed by CBDC reserves.
This approach offers four key advantages:
- Central Bank Oversight Without Direct Retail Exposure
The central bank ensures settlement finality via CBDC without managing millions of individual wallets—avoiding disintermediation of commercial banks. - Monetary Unity
All retail stablecoins derive value from the same central bank money, preventing fragmentation and maintaining currency coherence. - Comprehensive Regulatory Coverage
Issuers must comply with capital requirements, reserve rules, KYC/AML protocols, and disclosure standards—ensuring accountability. - Compatibility with Global Financial Infrastructure
Integrates seamlessly with SWIFT, CLS, card networks, and real-time gross settlement systems (RTGS), minimizing disruption while enhancing efficiency.
Pioneering projects like Project Agorá (led by BIS and NY Fed) and Fnality in the UK demonstrate the viability of this framework. Switzerland’s Helvetia project further validates the technical and operational feasibility of wholesale CBDC-backed ecosystems.
Strategic Considerations for China
China’s financial philosophy emphasizes a balance between market dynamism and state oversight—a contrast to the more laissez-faire approach seen in Western markets. Given this context, several strategic factors must guide any move toward RMB-linked stablecoins:
1. Structural Differences in Financial Systems
Unlike the U.S., where private innovation often leads regulatory adaptation, China prioritizes financial stability through proactive supervision. Premature adoption of privately issued stablecoins could undermine regulatory authority and increase systemic risk.
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2. Aligning with National Financial Strategy
While dollar-based stablecoins reinforce U.S. hegemony, China’s goal is to support real economic development through RMB internationalization—not speculative dominance. Any stablecoin initiative must serve broader policy objectives like trade facilitation and offshore RMB market development.
3. Reassessing “Peer-to-Peer” Efficiency Claims
The notion that blockchain enables frictionless trade ignores real-world complexities: information asymmetry, trust gaps, and logistics delays. Traditional instruments like letters of credit exist for good reason—they mitigate risk in cross-border commerce.
True innovation lies not in eliminating intermediaries but in digitizing and streamlining them—a role well-suited for tokenized bank deposits operating within a regulated framework.
4. Focus on Wholesale-Level Reform
Retail remittances make up less than 10% of global cross-border payments. The vast majority involves institutions—governments, banks, multinationals—where efficiency gains have far greater macroeconomic impact.
Yet most attention—from G20 roadmaps to private projects—focuses on retail use cases. This imbalance distorts innovation priorities and weakens resilience in the international monetary system.
A dual-layer model corrects this by integrating both levels: strengthening wholesale infrastructure while improving retail accessibility.
A Path Forward: Offshore RMB Tokenization
The Third Plenary Session of the 20th CPC Central Committee emphasized developing offshore RMB markets—an opportunity to explore tokenized offshore RMB deposits issued by licensed banks under a dual-layer framework.
Such an approach would:
- Leverage existing regulatory safeguards
- Support RMB internationalization without destabilizing onshore markets
- Enable participation in global tokenized finance initiatives like Project Agorá
- Mitigate risks such as cross-border arbitrage driven by interest rate differentials
However, careful calibration is essential to avoid encouraging speculative capital flows or destabilizing exchange rate mechanisms.
Frequently Asked Questions (FAQ)
Q: What is a stablecoin?
A: A stablecoin is a type of cryptocurrency designed to maintain a stable value, typically pegged to a fiat currency like the U.S. dollar or euro, using reserves or algorithmic mechanisms.
Q: Are all stablecoins risky?
A: Not inherently—but privately issued ones without transparent reserves or regulatory oversight carry higher risks related to insolvency, runs, and market manipulation.
Q: How does a CBDC differ from a stablecoin?
A: A central bank digital currency (CBDC) is issued by a central bank and carries sovereign backing. Stablecoins are usually issued by private entities and rely on asset reserves for stability.
Q: Can China launch an RMB stablecoin safely?
A: Yes—through regulated models like bank-issued deposit tokens backed by wholesale CBDCs, ensuring compliance, stability, and alignment with national financial strategy.
Q: Will stablecoins replace traditional banking?
A: Unlikely. The most sustainable path integrates blockchain efficiency into existing systems rather than replacing intermediaries altogether.
Q: Is blockchain necessary for modern payments?
A: While not the only solution, blockchain enables programmable money, faster settlement, and new financial applications—making it a key component of future-ready infrastructure.
The future of money isn’t about choosing between decentralization and regulation—it’s about integrating innovation within trusted frameworks. For China and other nations navigating this shift, the wholesale-retail dual-layer model offers a balanced path forward: one that supports financial innovation, strengthens sovereignty, and advances inclusive, resilient global finance.
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