China Grapples with Stablecoin Risks to Guard Financial Sovereignty

China has launched a comprehensive research initiative on global stablecoin risk governance and cross-border regulatory systems, as outlined in a recent announcement from the National Natural Science Foundation of China. The project, part of the 2025 Phase 3 Emergency Management Program, seeks to explore the structural evolution of stablecoins, their potential risks, and the broader implications for financial stability and monetary sovereignty. The initiative includes five sub-themes covering risk transmission, financial intermediary impacts, and global regulatory frameworks, with a total funding allocation of 300,000 yuan. The application deadline is set for October 9, 2025, with the research period spanning 10 to 12 months [7].

This initiative follows a global surge in stablecoin adoption and regulatory attention, particularly in the United States and Hong Kong. The U.S. GENIUS Act, signed into law in July, established federal standards for stablecoin issuance, requiring issuers to fully back their tokens with cash or short-term Treasury bonds and adhere to anti-money laundering rules [1]. Meanwhile, Hong Kong introduced its own regulatory framework in August, mandating stablecoin issuers to be licensed by the Hong Kong Monetary Authority. These developments have positioned stablecoins as a key component of digital finance, with potential implications for global monetary systems and financial intermediation [3].

The rise of stablecoins has sparked debates over their role in financial systems and the risks they pose. While stablecoins offer advantages such as fast cross-border transactions and programmable features, they also introduce challenges such as lack of deposit insurance, incomplete regulation, and potential money laundering risks. The Bank for International Settlements has highlighted that stablecoins fall short on several key tests for money, including singleness, elasticity, and integrity [6]. Additionally, the Federal Reserve Bank of Kansas City has raised concerns about how increased stablecoin demand could reduce the funds available for traditional banking lending [1].

In China, the government has taken a cautious approach to stablecoins, maintaining restrictions on crypto activities while exploring opportunities for offshore yuan-backed stablecoins in Hong Kong. This strategy reflects a broader effort to internationalize the yuan and reduce reliance on the U.S. dollar in global financial systems. However, tight capital controls and regulatory uncertainties continue to limit the adoption of stablecoins within mainland China. Despite these constraints, Chinese fintech firms are exploring opportunities in jurisdictions like Hong Kong and Singapore to issue U.S. dollar-backed stablecoins that comply with international standards [4].

The regulatory landscape for stablecoins remains dynamic, with ongoing discussions about their impact on traditional financial systems. The U.S. CLARITY Act, currently under consideration, aims to address gaps in stablecoin governance and establish a broader regulatory framework for blockchain-based financial products. This legislation could further shape the evolution of stablecoins and their integration into the traditional financial ecosystem. Meanwhile, Chinese regulators are closely monitoring global developments, particularly as they relate to financial stability, monetary sovereignty, and cross-border collaboration in risk governance [1].

The growing influence of stablecoins underscores the need for coordinated regulatory approaches and robust risk management frameworks. As these digital assets continue to evolve, their potential to reshape global financial systems will depend on how effectively regulators, financial institutions, and technology providers can address the challenges they present. The National Natural Science Foundation of China’s initiative represents a significant step toward understanding these dynamics and developing strategies for global risk governance [7].

Source:

[1] The Loophole Turning Stablecoins Into a Trillion-Dollar Fight (https://www.wired.com/story/genius-act-loophole-stablecoins-banks/)

[2] Stablecoin Has Arrived. Is The Payments Revolution ... (https://www.investors.com/news/stablecoin-genius-act-payments-revolution/)

[3] China's stablecoin dilemma: why US dollar tokens matter (https://www.scmp.com/economy/china-economy/article/3324322/chinas-stablecoin-dilemma-why-us-dollar-tokens-matter-and-how-beijing-might-respond)

[4] Beijing rides US stablecoin wave to global shores (https://eastasiaforum.org/2025/09/04/beijing-rides-us-stablecoin-wave-to-global-shores/)

[5] China's incubating crypto in Hong Kong but the city's strict ... (https://www.cnn.com/2025/09/02/business/china-hong-kong-crypto-regulation-intl-hnk-dst)

[6] What to Know About Stablecoins (https://www.jpmorgan.com/insights/global-research/currencies/stablecoins)

[7] The National Natural Science Foundation of China ... (https://www.panewslab.com/en/articles/57aac101-56af-4030-8d71-250dcd7514e7)