PBOC Sees Limited Need for Blockchain Stablecoins in China

The People’s Bank of China (PBOC) has released a research report indicating a limited need for the domestic adoption of independent blockchain stablecoins. The report highlights that China's third-party payment providers, such as WeChat Pay, already operate on a mechanism similar to a "stablecoin" anchored to the RMB, relying on legal reserves to ensure currency stability. This efficient and low-cost payment system makes the widespread adoption of independent blockchain-based stablecoins in China less necessary, thereby posing a limited threat to existing businesses.

According to the PBOC, domestic transaction fees are as low as a fraction of a percent, significantly lower than those of overseas platforms. This cost efficiency, combined with the mature third-party payment system, reduces the urgency for adopting independent blockchain stablecoins. However, internet companies involved in cross-border payments are more actively exploring the stablecoin field. These companies have several advantages in stablecoin adoption, including user scenarios, technical capabilities, and ecosystem synergy.

Companies like Amazon, with hundreds of millions of users and mature payment scenarios such as cross-border e-commerce, can quickly promote stablecoin applications. Additionally, internet companies possess strong technology R&D capabilities, which are crucial for the development and implementation of stablecoins. The combination of B2B (supply chain) and B2C (retail payments) loops can enhance the network effect of stablecoins, making them more attractive for adoption.

The PBOC's stance on stablecoins is part of its broader approach to monetary policy, which prioritizes structural monetary tools to support the stable and healthy development of real estate and capital markets. The central bank's dual mandate—to maintain stable prices and promote economic growth—requires a balanced approach, involving adjustments to policy levers in response to both domestic and global economic conditions. The PBOC employs a variety of tools, including interest rates, reserve requirements, and open market operations, to achieve these objectives.

In the context of real estate, the PBOC's policies aim to create a stable environment that supports both developers and investors. By managing inflation and ensuring liquidity in the market, the PBOC helps to maintain the value of properties and encourages investment. The role of reserve requirement ratios (RRR) in influencing bank lending is also crucial, as it can impact the real estate market by either stimulating or slowing down investment activity. The PBOC's emphasis on structural monetary tools aligns with its broader strategy to support economic development and stability.

The PBOC's cautious approach towards independent blockchain stablecoins is driven by concerns over potential risks. The widespread adoption of stablecoins could trigger fire sales of underlying reserve assets in the event of a crisis, raising the specter of financial instability. This perspective is shared by other central banks, which have also warned about the potential risks associated with stablecoins. The PBOC's stance reflects its commitment to maintaining monetary sovereignty and ensuring the stability of the financial system. The central bank is likely to continue monitoring developments in the stablecoin space and may consider regulatory measures to mitigate potential risks.

The PBOC's position on stablecoins comes at a time when China is facing increasing pressure to launch yuan-based stablecoins to counter the global dominance of dollar-denominated stablecoins. Chinese giants such as JD.com and Ant Group have been advocating for the launch of yuan-based stablecoins to enhance China's monetary sovereignty and promote the international use of the renminbi. However, the PBOC's cautious approach suggests that it is prioritizing financial stability over the potential benefits of stablecoins. The central bank is likely to continue exploring the development of digital currencies, including the digital renminbi, as a means of enhancing monetary control and promoting financial innovation.