PBOC Warns Stablecoins Lack Decentralization of Traditional Currencies

In a recent development, the People's Bank of China (PBOC) released an economic analysis of stablecoins, highlighting the distinction between stablecoins and government-issued currencies. According to the analysis, stablecoins are considered private currencies from the holder's perspective, as they are not backed by any government. While digital technology enhances the efficiency of payment settlements, it lacks the decentralization that is a hallmark of traditional currencies.

The PBOC's analysis also compared the stablecoin model to a "narrow bank," emphasizing that it is not merely a liability but a more complex financial instrument. The analysis noted that the Chinese Yuan already has stablecoins in the form of WeChat Pay and Alipay, which function similarly to stablecoins in terms of economic mechanisms. These third-party payment platform currencies and stablecoins share similar functions, such as facilitating transactions and providing a means of exchange.

Currently, the use of stablecoins in regular retail payments is limited, with a small user base and few use cases. Third-party payment platforms like WeChat, Alipay, Apple Pay, and PayPal have established network effects and economies of scale, giving them a first-mover advantage in the market. The growth potential of USD stablecoins is largely attributed to the US dollar's status as an international currency, which can drive dollarization.

Hong Kong serves as a controlled test field for RMB stablecoins and a regulatory adjustment site. This role is crucial in balancing the potential of technological innovation with the need to maintain the public good attributes of payment, financial stability, and national monetary sovereignty. The analysis underscores the importance of regulatory oversight in ensuring that stablecoins do not undermine the stability of the financial system or the sovereignty of national currencies.