China Urges Caution on USD-Pegged Stablecoins, Promotes Digital RMB

China has expressed significant concerns over the reliability of USD-pegged stablecoins, urging caution and emphasizing the strategic importance of the RMB in digital transactions. This stance is part of a broader initiative by the central bank to maintain currency sovereignty and financial stability. The move is seen as a precautionary measure to safeguard against potential risks associated with privately issued stablecoins, which have been gaining traction in cross-border payments and other financial activities.

Guan Tao, head economist at BOC Securities, addressed stablecoin concerns during a seminar. His stance discourages haste in adopting USD-pegged stablecoins, spotlighting the strategic importance of the RMB. Guan Tao emphasized that the US dollar stablecoin is not the legal tender of the United States and lacks the guarantee of sovereign credit. For stablecoins, he advised a 'wait-and-see' attitude, maintaining the strategic determination to develop digital currency and promote the internationalization of the RMB.

Guan Tao's insights underscore the pivotal debate over digital currency's role in financial systems, as nations weigh emerging risks against sovereignty needs. Community sentiment remains divided, with many supporting digital RMB's growth and prioritizing it over foreign stablecoins, illustrating China's preference for regulated, state-backed digital currencies that uphold monetary control.

China's central bank is committed to promoting its own digital currency, the central bank digital currency (CBDC), while simultaneously banning the domestic use of privately issued stablecoins. This dual approach aims to ensure that the RMB remains the dominant currency in digital transactions, thereby preserving the country's monetary sovereignty. The CBDC, which is being rapidly rolled out, is designed to offer a secure and efficient alternative to stablecoins, aligning with the government's broader financial strategy.

The concerns over stablecoins are not limited to China. Globally, there is a growing recognition of the impact stablecoins can have on monetary policy. As the scale of stablecoins approaches significant levels, countries are starting to view them as parallel currencies, which can influence traditional monetary systems. This has led to a re-evaluation of regulatory frameworks and the need for clearer compliance guidelines.

The global landscape for stablecoins is undergoing a significant restructuring, with major financial centers accelerating their regulatory efforts. This shift is driven by the recognition that stablecoins are moving out of the gray area and into the mainstream financial system. The passage of the GENIUS Act in the United States, for example, marks the first establishment of a national-level regulatory framework for stablecoins, sending a clear signal that these digital assets are becoming an integral part of the financial ecosystem.

The regulatory changes are not limited to the United States. The European Union's MiCA Regulation, which comes into effect in 2024, comprehensively covers the regulatory compliance of crypto assets and classifies stablecoins in detail. Similarly, South Korea's new president has proposed legislation that allows companies with sufficient capital to issue stablecoins, provided they ensure refunds through reserves. These developments indicate a global trend towards establishing clear compliance frameworks for stablecoins, which will shape their future role in the financial system.

The path for stablecoins is changing, with an increasing number of Web2 financial companies and traditional funding forces entering the market. These entities are building on-chain settlement tools with stablecoins, such as PayPal's PYUSD and the USD1 backed by new political capital. These emerging stablecoin projects are pushing the function of stablecoins from "Web3 liquidity tools" to a value bridge connecting Web3 and the real economic system. Their use cases are gradually penetrating into supply chain finance, cross-border trade, freelance payment, OTC scenarios, and other diversified uses.

However, the surge in stablecoins also brings new challenges. The GENIUS Act, while granting stablecoins institutional recognition, also imposes more compliance requirements, setting clearer regulatory boundaries for their development. Issuing entities must abide by KYC/AML management, funds must have custodial segregation and third-party auditing, and in extreme cases, issuance limits or usage restrictions may be set. This means that stablecoins have gained a legal identity but have also officially stepped into the role of being "regulated currencies."

The greatest growth potential of stablecoins lies not within the crypto circle but in the broader Web2 and the global real economy. The main increment of USDT and USDC, for example, no longer comes from on-chain interacting users but rather from small and medium-sized enterprises and individual merchants with a strong demand for cross-border settlements. Emerging markets and financially vulnerable areas that cannot access the SWIFT network, residents of inflation-stricken countries looking to escape currency fluctuations, and content creators and freelancers who cannot use traditional payment methods are all potential users of stablecoins.

In conclusion, the regulatory assistance brought about by the global policy shift will be an important driving force for stablecoins to reach mainstream status. However, it also means that they must survive within more complex games, involving monetary sovereignty, financial sanctions, and geopolitical order. This is a long-cycle game, and the true potential of stablecoins is yet to be fully realized.