China urged to embrace stablecoins as US moves to cement lead

Business Times

02-07-2025

China faces growing calls from policy advisers and economists to explore using stablecoins for cross-border payments, as the US moves to entrench the US dollar's dominance through crypto technology.
While China has not formally embraced stablecoins – digital tokens pegged to traditional currencies – and maintains a sweeping ban on crypto activities, recent remarks from senior central bank officials have given fresh momentum to discussions about their potential role in global payments.
The People's Bank of China (PBOC) governor Pan Gongsheng said in June that stablecoins could revolutionise international finance, particularly as rising geopolitical tensions highlight the fragility of traditional payment systems, which he warned can be politicised and used as a sanction tool.
At the same Shanghai event, former central bank governor Zhou Xiaochuan said US dollar-linked stablecoins could facilitate dollarisation. Other mainland and Hong Kong financial officials talked about the potential for yuan-based stablecoins to support China's long-running effort to promote its currency on the world stage.
Beijing has long been wary of cryptocurrencies, viewing it as a threat to financial stability and capital controls. But economists now see an opening, fuelled in part by the Trump administration's growing support for digital tokens. Morgan Stanley suggests China could use Hong Kong to trial offshore yuan-based stablecoins that would avoid violations of Beijing's strict capital rules.
'Stablecoins are not new currencies, but new distribution channels for existing ones,' said Robin Xing, chief China economist at Morgan Stanley. 'It is crucial for China to embrace the trend of sovereign currency tokenisation to maintain competitiveness in the digital infrastructure race.'
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Just hours before Pan and other Chinese officials spoke at the Jun 18 Lujiazui Forum, the US Senate passed a bill regulating stablecoins, in a major win for the crypto industry and a boost for US President Donald Trump's digital asset agenda.
Treasury Secretary Scott Bessent said in a Jun 19 X post that stablecoins could strengthen, not threaten, the US dollar's dominance. He told Bloomberg TV on Monday (Jun 30) that global users are likely to favour US-backed stablecoins over central bank digital currencies from Europe or China, citing greater trust in the private sector under US regulation than the risk of government control elsewhere.
Stablecoins, typically backed by traditional currencies and issued by private firms, are gaining traction as a faster, cheaper option for cross-border payments. Most are pegged to the US dollar and backed by US assets such as short-term Treasuries, with total supply projected to reach US$3.7 trillion by 2030.
In response, Chinese economists are urging the development of yuan-linked alternatives. JD.com's chief economist Shen Jianguang warned that without such efforts, China risks falling behind in the race for next-generation currency leadership. Founder Richard Liu reportedly told staff the company plans to apply for stablecoin licenses in all major markets to cut cross-border payment costs by 90 per cent and reduce settlement time to under 10 seconds.
Hong Kong has recently introduced its own regulatory framework for fiat-referenced stablecoins, offering licenses to issuers operating in the city. JD.com and Ant Group are among the first tech giants expected to apply. Shanghai-listed Zhejiang China Commodities City Group, operator of the world's largest wholesale goods market, has also said it plans to seek a license.
Offshore yuan stablecoins could help China take advantage of mounting global unease with US dollar dominance, especially after it was used as a tool of financial pressure following Russia's invasion of Ukraine. Interest in the yuan is growing, with more than 30 per cent of China's goods trade settled in the currency in February, the highest in a decade, though its share in global payments remains modest.
The growing interest in stablecoins comes as China's own state-backed digital currency, the e-CNY, has struggled to gain traction both at home and abroad. A separate cross-border payments initiative, mBridge, is facing an uncertain future after a main participant, the Bank for International Settlements, pulled out over concerns it could be used to bypass sanctions.
Pan recently announced plans for an international e-CNY centre in Shanghai, signalling continued interest in promoting its use for trade.
China should take a 'dual track' approach to bolster the yuan's global use, according to Li Yang, chairman of the state-backed National Institution for Finance and Development and a former PBOC adviser. That would involve continuing traditional efforts, such as expanding currency swaps and the yuan-based Cips settlement system, while also leveraging Hong Kong's financial institutions to promote offshore yuan-linked stablecoins.
For now, stablecoins are mostly used for crypto trading instead of business payments, and regulators still need to address risks such as fraud and financial crime. While many countries are exploring regulations, key questions remain, such as whether stablecoins should be treated as currencies or financial assets.
Chinese stablecoins may face limits without broader economic reforms, according to Eswar Prasad, a Cornell University professor and author of the book The Future of Money: How the Digital Revolution Is Transforming Currencies and Finance.
'Yuan-linked stablecoins issued in Hong Kong are unlikely to gain much traction in the absence of unification of onshore and offshore exchange markets,' he said.
But stablecoins, he added, could nudge Beijing towards change. By complicating exchange rate and monetary policy management, they might 'serve as an incentive to undertake liberalisation and market-oriented reforms', he said. BLOOMBERG