The global financial landscape is undergoing a seismic shift, driven by rapid advancements in digital currencies. In 2025, Hong Kong’s Stablecoin Ordinance took effect on June 6, followed by the U.S. Senate passing a comprehensive stablecoin regulatory bill on June 17. These developments have intensified global discussions around stablecoins—digital assets pegged to stable value references like the U.S. dollar—and their role in reshaping cross-border payments, monetary policy, and financial infrastructure.
At the heart of this transformation lies a critical question: Should China develop its own renminbi (RMB)-linked stablecoins, and if so, how can they be designed to support financial innovation while safeguarding stability?
The Rise of Private Stablecoins
Private stablecoins such as USDT (Tether) and USDC (USD Coin) have experienced explosive growth, with the global market expanding from under $5 billion in 2020 to over $250 billion today. Over 99% of these are dollar-denominated, reinforcing the U.S. dollar’s dominance in digital finance.
These stablecoins offer compelling advantages:
- Near-instant settlement across borders
- Lower transaction costs compared to traditional banking networks
- Programmability through smart contracts on blockchains
However, their cost efficiency stems not just from technological innovation but also from bypassing regulatory compliance, capital requirements, and operational overheads that traditional banks face—such as KYC (Know Your Customer), AML (Anti-Money Laundering), and correspondent banking fees.
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This raises an important caveat: once stablecoins enter regulated frameworks, many of these cost advantages may erode. As central banks worldwide move to bring stablecoins under supervision, the true test will be whether they can maintain efficiency without compromising safety.
Opportunities and Risks of Stablecoin Adoption
Key Benefits
- Efficiency in Cross-Border Payments
Stablecoins enable 24/7 real-time transfers, reducing settlement times from days to seconds. This is particularly valuable for institutional transactions where liquidity management is crucial. - Financial Inclusion and Interoperability
Unlike closed-loop systems like SWIFT or card networks, stablecoin ecosystems operate on open, permissionless blockchains—enabling broader access to financial services globally. - Programmable Money
Smart contract functionality allows for automated payments, conditional settlements, and integration into decentralized finance (DeFi) applications—offering far greater flexibility than legacy API-based treasury systems.
Major Challenges
- Monetary Policy Erosion
Widespread adoption of non-sovereign stablecoins could weaken central banks’ control over money supply and interest rates—effectively creating parallel monetary systems outside regulatory oversight. Financial Stability Risks
- Run risk: If users lose confidence in a stablecoin’s reserves, mass redemptions could trigger fire sales of underlying assets (e.g., U.S. Treasuries).
- Asset-liability mismatch: Most stablecoins hold long-duration bonds but allow instant redemption, creating structural fragility.
- Systemic contagion: A collapse in one major stablecoin could ripple through global markets due to interconnected exposures.
- Digital Dollarization
With nearly all major stablecoins pegged to the U.S. dollar, emerging economies risk seeing their domestic currencies sidelined—a phenomenon known as “digital dollarization” that threatens monetary sovereignty.
Three Models of Stablecoin Issuance
1. Private Company Model (e.g., USDT, USDC)
Issued by private firms backed by high-quality liquid assets (HQLA), primarily short-term U.S. government debt. While innovative and scalable, this model concentrates power in private hands and reinforces dollar hegemony.
2. Bank-Issued Deposit Tokens (e.g., JPM Coin)
Banks tokenize customer deposits on private blockchains, enabling fast interbank settlements. This model leverages existing regulatory frameworks and bank balance sheets but may lack interoperability and limit competition.
3. Wholesale-Retail Dual-Tier Model
This emerging architecture combines central bank digital currency (CBDC) at the wholesale level with regulated stablecoins at the retail layer.
Why It Matters:
- Preserves Central Bank Authority: The central bank issues wholesale CBDC to licensed institutions, ensuring finality of settlement with sovereign backing.
- Enables Private Innovation: Financial institutions and payment providers issue retail stablecoins pegged to wholesale CBDC, offering user-facing services.
- Ensures Regulatory Oversight: All participants must be licensed and comply with capital, reserve, and transparency rules—aligning with “same activity, same risk, same regulation” principles.
- Supports Global Interoperability: Can integrate with existing systems like SWIFT, CLS, and FPS while enabling future cross-border payment rails.
Real-world examples include:
- Project Agorá (led by BIS and NY Fed): Explores cross-border settlement using tokenized deposits.
- Fnality International (UK): Building a DLT-based payment system using central bank money.
- Project Helvetia (Switzerland): Demonstrated feasibility of wholesale CBDC for securities settlement.
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Strategic Considerations for China
China’s financial system differs fundamentally from Western models. With strong state oversight and a focus on financial stability, the People's Bank of China (PBOC) has prioritized controlled innovation—evident in its early launch of the digital RMB (e-CNY).
Given this context, several strategic insights emerge:
- Avoid Unregulated Private Stablecoins
Premature liberalization could undermine monetary control and enable capital flight. The 2023 Central Financial Work Conference emphasized robust supervision across institutions, behaviors, functions, and continuous monitoring. - Pursue Offshore RMB Deposit Tokenization
Within the dual-tier model, allowing qualified banks to issue offshore RMB deposit tokens could advance RMB internationalization without compromising onshore stability. These would function similarly to regulated stablecoins but remain fully integrated within the banking system. - Manage Interest Rate Arbitrage Risks
Differentials between onshore and offshore RMB rates could incentivize speculative activity if not carefully managed. Regulatory frameworks must include macroprudential tools to mitigate carry-trade risks. - Focus on Wholesale-Level Impact
While retail remittances grab headlines, over 90% of cross-border payments occur at the institutional level—between governments, central banks, and financial institutions. Strengthening RMB usage here is key to elevating its global status.
FAQs: Your Questions Answered
Q: Are stablecoins safer than traditional cryptocurrencies like Bitcoin?
A: Generally yes—stablecoins aim to minimize price volatility by being backed by reserves. However, risks remain around reserve transparency, regulatory compliance, and potential runs during market stress.
Q: Can stablecoins replace traditional banking systems?
A: Not entirely. While they enhance efficiency, banking intermediaries play vital roles in credit creation, risk assessment, and financial inclusion—functions stablecoins alone cannot replicate.
Q: Will regulated stablecoins still be cost-effective?
A: Their cost advantage may diminish as compliance requirements increase. However, efficiencies from instant settlement and automation can still deliver net benefits over legacy systems.
Q: How does the dual-tier model protect against systemic risk?
A: By anchoring retail stablecoins to central bank-issued wholesale CBDC, it ensures settlement finality and eliminates reliance on private actors as lenders of last resort.
Q: Is digital RMB a type of stablecoin?
A: No. The e-CNY is a central bank digital currency—direct liability of the PBOC—whereas stablecoins are typically private liabilities backed by reserves.
Q: Could RMB stablecoins challenge the U.S. dollar’s dominance?
A: Long-term potential exists, especially if integrated into global trade and commodity markets. But widespread adoption requires deep liquidity, trust, and international cooperation.
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Final Thoughts
The rise of stablecoins isn't just a technological shift—it's a reconfiguration of monetary architecture. For China, the path forward lies not in mimicking unregulated models but in pioneering a balanced approach: leveraging blockchain innovation within a secure, regulated dual-tier framework.
By focusing on wholesale-level infrastructure, promoting offshore RMB tokenization, and aligning with global standards like those explored in Project Agorá, China can contribute meaningfully to a more inclusive, efficient, and multipolar international monetary system—one where digital currencies serve national strategy without compromising stability.
Core Keywords: stablecoin, digital currency, cross-border payments, CBDC, financial innovation, RMB internationalization, blockchain, regulatory compliance