Opinion: Why Has China Decisively Halted Stablecoins?

Author | Wang Yongli

Compiled by WuBlockchain

Source:

https://mp.weixin.qq.com/s/0yab2tEwbnORqsCxFNIw5w

Wang previously served as Vice President and Executive Director of Bank of China

China’s policy direction — accelerating the development of the digital RMB while resolutely curbing virtual currencies including stablecoins — has now become completely clear. This reflects a comprehensive consideration of multiple factors, such as China’s global leading position in mobile payments and the digital RMB, the security of RMB sovereignty, and the stability of the monetary and financial system.

Since May 2025, the United States and Hong Kong have raced to advance stablecoin legislation, triggering a global surge in laws regulating stablecoins and crypto-assets (also called “cryptocurrencies” or “virtual currencies”). Numerous institutions and investors have flocked to issue stablecoins and invest in crypto-assets. This has also ignited heated debate in China over whether the country should aggressively promote stablecoin legislation and the development of RMB stablecoins (including offshore versions). Moreover, after the United States passed legislation prohibiting the Federal Reserve from issuing a digital dollar, whether China should continue advancing the digital RMB became a major point of contention.

For China, this concerns the strategic direction and path of national currency development. As U.S. dollar stablecoins proliferate globally, international relations grow more complex and tense, and global monetary competition intensifies, the question of how the RMB should innovate while safeguarding national security — and how China can achieve the strategic goal of building a strong currency and financial power — has profound significance. It requires calm analysis and decisive action: China must neither hesitate nor imitate others blindly, nor commit a fundamental strategic error.

Subsequently, the People’s Bank of China announced that it would refine the positioning of the digital RMB within the monetary hierarchy (adjusting the earlier M0 designation — something the author has repeatedly argued against since the beginning; see the author’s article on January 6, 2021: “The Digital RMB Should Not Be Positioned as M0”). The central bank also stated it would further improve the digital RMB’s management framework — establishing a Digital RMB International Operations Center in Shanghai, responsible for cross-border cooperation and usage, and setting up a Digital RMB Operations Management Center in Beijing, responsible for system development, operation, and maintenance — to promote and accelerate the development of the digital RMB.

On November 28, the PBOC and 12 other departments convened a joint meeting of the coordination mechanism for cracking down on virtual currency trading and speculation. They noted that due to various factors, virtual currency speculation has recently rebounded, with related illegal activities occurring from time to time, creating new challenges for risk prevention. They stressed that all departments must deepen cooperation, adhere to the prohibition of virtual currencies, and continue to crack down on illegal financial activities involving virtual currencies. They explicitly stated that stablecoins are a form of virtual currency and that activities such as issuance and trading are equally illegal and fall within enforcement scope. This disappointed those who believed China would promote RMB stablecoins and relax its ban on virtual-currency (crypto-asset) trading.

Thus, China’s policy orientation — accelerating digital RMB development and resolutely suppressing virtual currencies including stablecoins — has been fully clarified. Naturally, this policy direction continues to spark intense debate domestically and internationally, and opinions remain divided.

So how should we understand this major policy choice?

Below, we first address why China has decisively halted stablecoins. A separate article will discuss how to accelerate digital RMB innovation.

Limited Room and Opportunity to Develop Non-USD Stablecoins

Since Tether launched USDT in 2014 — a stablecoin pegged to the U.S. dollar — U.S. dollar stablecoins have operated for more than a decade and formed a fully internationalized ecosystem. They dominate nearly the entire crypto-asset trading market, accounting for over 99% of the global stablecoin market in both capitalization and trading volume.

This situation arose partly because the U.S. dollar is the world’s most liquid international reserve currency, with the most mature supporting infrastructure, making USD-pegged stablecoins the easiest to accept globally. It also reflects the United States’ long-standing permissive approach to Bitcoin and other crypto-assets as well as to USD stablecoins instead of leading global efforts to strengthen necessary regulation for the broader interests of humanity. Even now, as the U.S. pushes stablecoin and crypto-asset legislation, its motivation is largely to increase global demand for dollars and U.S. Treasuries, reduce financing costs for the U.S. government and economy, and reinforce the dollar’s global dominance — while aiming to enhance control over USD stablecoins to mitigate domestic impacts — rather than to mitigate global systemic risks.

With the United States aggressively promoting USD stablecoins, any attempt by other countries or regions to issue non-USD fiat stablecoins may find some localized application — within their own jurisdictions or on proprietary e-commerce platforms — but will find little room for meaningful development internationally. Lacking strong ecosystem support, compelling features relative to USD stablecoins, or the ability to attract trading volume, non-USD stablecoins are unlikely to achieve expected returns and will struggle to survive amid tightening global regulation.

Challenges and Problems in U.S. Stablecoin Legislation

After Donald Trump won a second presidential term, his enthusiastic support for Bitcoin and other crypto-assets ignited a new wave of speculation, driving rapid expansion in stablecoin trading and market capitalization. While this increased global demand for U.S. dollars and Treasuries and bolstered the dollar’s status — benefiting the Trump family and crypto-industry associates — it also created new challenges for U.S. oversight of global dollar flows and the stability of the traditional U.S. financial system. At the same time, crypto-asset trading facilitated by USD stablecoins has become a novel and harder-to-detect mechanism for the U.S. to extract global wealth, posing serious threats to other countries’ monetary sovereignty and financial security.

As a result, the U.S. accelerated stablecoin legislation, but the legislation prioritizes U.S. national — and even group — interests, often at the expense of other countries and global welfare.

Under the new laws, any institution issuing USD stablecoins must obtain approval and licensing from U.S. regulators. (For this reason, Tether has already announced plans to apply for U.S. licensing to issue U.S.-facing USDT.) Compliant issuers must meet stringent requirements, including KYC, AML, and counter-terrorism financing controls; screening customers against government watchlists; reporting suspicious activity; and maintaining the ability to freeze or block specific stablecoin accounts upon law-enforcement orders. Issuers must hold at least 100% reserves in regulator-approved U.S. dollar assets — cash, short-term Treasuries, and Treasury-backed repos — and must keep U.S. customer funds in U.S. banks. Issuers cannot pay interest on stablecoins, must tightly control issuance, and cannot engage in proprietary manipulation. Reserves must be held by independent, regulator-approved custodians and be audited monthly.

This greatly enhances stablecoins’ value stability relative to the dollar, strengthens their function as payment instruments, and improves compliance — while weakening investment attributes and reducing illicit usage. It raises regulatory costs and reduces the extreme profitability seen in the unregulated environment.

The legislation officially took effect on July 18, but major challenges remain. For example, although reserve asset categories are defined (bank deposits, short-term Treasuries, repo agreements, etc.), these assets fluctuate in market value. If Treasury prices fall, reserves may become insufficient. If different issuers hold different reserve compositions and there is no central bank backstop, then USD stablecoins will not be identical across issuers, creating arbitrage opportunities and complicating regulation and market stability. Even if no over-issuance occurs at the outset, decentralized finance (DeFi) lending could still create derivative and expanded stablecoin supply unless strictly confined to pure matchmaking without proprietary risk. Moreover, requiring non-bank issuers to meet regulatory standards is inherently difficult.

More importantly, the primary purpose of fiat-backed stablecoins has always been to serve as a unit of account and settlement instrument for borderless, decentralized, 24/7 crypto-asset trading on blockchains. Crypto-assets like Bitcoin cannot fulfill the fundamental monetary requirement of stable value representation — i.e., the monetary supply must adjust with the total tradable wealth demand for denominated settlement. Their extreme price volatility makes them unsuitable as true currencies. Thus, fiat-backed stablecoins emerged to support the growth of on-chain transactions and to bridge the crypto world and real world (through tokenization of real-world assets, or RWA). This inevitably increases the financialization and velocity of global wealth, accelerating capital shifts toward a small number of countries or groups. Without strong global regulation of stablecoin issuance and crypto-asset trading, systemic risks will escalate dramatically. The Trump-era hype has created massive bubbles and hidden dangers; it is unsustainable, and the international community must remain vigilant.

Stablecoin Legislation May Severely Backfire

An outcome beyond the expectations of stablecoin legislation is that regulating fiat stablecoins will inevitably drive legislation for all crypto-assets — including Bitcoin and RWAs — since these assets rely on stablecoins for denominated settlement.

Before crypto-assets receive legal recognition and compliance protection, licensed financial institutions cannot directly participate in trading, clearing, or custody, leaving such opportunities to unregulated private firms. These actors enjoyed high profits due to the absence of regulatory costs, exerting increasing pressure on banks and the existing financial system. This forced governments and monetary authorities to accelerate stablecoin regulation. But once crypto-assets are legally recognized, banks will fully enter the market. Banks and payment institutions can directly tokenize deposits, allowing deposit-tokens to replace stablecoins as the bridge between the crypto world and the real economy. Traditional exchanges for stocks, bonds, money-market funds, and ETFs can also migrate these regulated assets onto blockchains as RWAs. With heavily regulated banks anchoring the system, implementing “same business, same regulation” becomes easier, and risks to the monetary and financial system diminish. This trend has already begun in the U.S. and is rapidly strengthening.

Thus, stablecoin legislation may severely undermine — or even overturn — the stablecoin industry itself.

In this context, it is not rational for other countries to imitate the U.S. model and aggressively push stablecoin development.

China Should Not Follow the U.S. Stablecoin Path

China already holds a world-leading advantage in mobile payments and the digital RMB. Promoting RMB stablecoins offers no advantage domestically and has limited potential internationally. China should not follow the U.S. strategy by developing both onshore and offshore RMB stablecoins.

More importantly, crypto-assets and stablecoins can leverage borderless blockchains and trading platforms to achieve global 24/7 real-time settlement. While this improves efficiency, it also allows highly anonymous, high-speed global capital flows that evade compliance requirements such as KYC, AML, and counter-terrorism financing. These characteristics pose obvious risks and have real-world precedents in money laundering, fundraising fraud, and illicit cross-border fund transfers. Since USD stablecoins dominate crypto-trading markets, and the United States exerts significant control over global blockchain infrastructure, crypto exchanges, and USD conversion channels (evidenced by U.S. authorities tracing, freezing, and seizing crypto accounts, and prosecuting exchange operators), China’s development of RMB stablecoins not only cannot challenge USD stablecoin dominance — it may even become subordinate to it.

This would disrupt China’s tax administration, foreign-exchange controls, and cross-border capital management, threatening RMB sovereignty and the stability of the monetary and financial system. Amid increasingly complex geopolitical conditions, China must prioritize national security, remain highly vigilant toward crypto-asset speculation, and enhance regulation rather than pursue efficiency and cost reduction alone. China must strengthen policy and legal frameworks, focus on critical information and capital flows, improve interdepartmental data sharing, enhance monitoring and tracing capabilities, and crack down on crypto-related illegal activities.

Of course, while firmly banning stablecoins and combating virtual-currency speculation, China must also accelerate innovation, development, and widespread adoption of the digital RMB — establishing global leadership and forging a uniquely Chinese path for digital-currency development, while actively exploring a fair, secure, and rational international monetary system.

Considering these factors, it becomes clear why China has chosen to resolutely curb virtual currencies — including stablecoins — while firmly advancing and accelerating the development of the digital RMB.

Wang Yongli, Doctor of Economics, Co-Chairman of Digital China Information Service Co., Ltd.

He previously served as Vice President and Executive Director of Bank of China, where he directly oversaw the bank’s response to the U.S. subprime mortgage crisis and the global financial crisis, as well as leading the unified optimization of Bank of China’s core systems. He was also the first Mainland Chinese Director of SWIFT, Senior Vice President of Leshi Holdings and CEO of Leshi Finance, Chief Economist of Shenzhen Neptunus Group, and General Manager of China International Futures Co., Ltd.

He has in-depth research and unique insights into financial accounting, monetary finance, international settlement, foreign exchange reserves, RMB internationalization, futures and derivatives, internet finance, cryptocurrencies and blockchain, and digital RMB, with extensive practical experience and theoretical attainments.

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