Former PBOC Chief Warns That Stablecoins Could Endanger China's Financial Stability

China Stablecoin Risks and Regulatory Responses

• Warnings from a Former Central Bank Chief: A former governor of the People's Bank of China (PBoC) has raised alarms about the systemic risks posed by stablecoins, even those fully backed by reserves. He highlighted that these digital assets could create a money-multiplier effect and that redemption pressures might exceed initial reserves, potentially leading to financial instability. Additionally, he warned that dollar-pegged stablecoins could exacerbate "dollarisation" in economies that are not under severe stress.

• Mainland China’s Crackdown on Promotion: In response to the growing concerns over stablecoins, Chinese regulators have instructed brokerages and think tanks to cease any promotional activities related to these digital assets. This crackdown aims to mitigate risks associated with fraud and speculative behavior, indicating a significant shift in regulatory stance towards stablecoins in China.

• Hong Kong’s More Open Path: Contrasting with mainland China's approach, Hong Kong has enacted legislation allowing licensed entities to issue fiat-backed tokens, creating a regulated environment for yuan-denominated stablecoins. This move is seen as a pilot initiative that could foster innovation while Beijing monitors the developments closely.

Market Dynamics and Projections

• Figures That Matter: The global supply of stablecoins has surged to approximately $270 billion by mid-2025, nearly doubling from earlier in the year. Projections suggest that this figure could escalate to $1.8 trillion by 2028, indicating a rapidly expanding market. Additionally, over-the-counter crypto trading in mainland China reached around $75 billion in the first nine months of 2024.

• What It Means for Markets: The evolving landscape of stablecoin regulation in China is influencing market strategies. Traders and cryptocurrency users are closely observing policy signals, as mainland authorities enforce stricter controls while Hong Kong's regulatory sandbox offers opportunities for innovation. This dual approach creates a tension for global investors between managing risks and adapting to strategic financial shifts.

Conclusion and Implications

• Balancing Caution and Ambition: The current discourse surrounding China stablecoin risks reflects a delicate balance between addressing potential financial instability and the ambition to enhance the global reach of the yuan. For cryptocurrency enthusiasts, the developments in China's stablecoin landscape signify a pivotal moment in the intersection of digital finance and global economic power.

• Future Developments: As the situation evolves, the implications of stablecoins in China could reshape not only domestic financial policies but also the broader dynamics of global finance, making it essential for stakeholders to remain vigilant and informed.