The global financial landscape is undergoing a profound transformation driven by digital innovation. As stablecoins gain momentum worldwide, their role in reshaping cross-border payments, financial infrastructure, and monetary policy has sparked intense debate. With regulatory frameworks emerging in key markets like Hong Kong and the United States, the conversation is no longer about if stablecoins will be integrated into mainstream finance—but how.
This shift raises a critical question: Should China develop its own stablecoin ecosystem? And if so, what model best aligns with its financial structure, regulatory priorities, and long-term goal of RMB internationalization?
The Rise of Stablecoins: A Global Phenomenon
Stablecoins—cryptocurrencies pegged to stable assets like the US dollar—are redefining digital payments. Leading examples such as USDT and USDC have propelled the global stablecoin market from under $5 billion in 2020 to over **$250 billion today**, with dollar-backed tokens accounting for 99% of the total.
This explosive growth reflects strong demand for faster, cheaper, and more efficient cross-border transactions—especially within decentralized finance (DeFi) ecosystems. However, this expansion also underscores a growing concentration of power in a few private issuers, raising concerns about systemic risk, financial stability, and monetary sovereignty.
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Opportunities and Risks of Private Stablecoins
Private stablecoins offer undeniable advantages:
- Near-instant settlement: Unlike traditional banking networks that operate on business days, stablecoins enable 24/7 real-time transfers.
- Lower transaction costs: While often cited as being up to 90% cheaper than legacy systems, these savings largely stem from bypassing regulatory compliance, capital requirements, and correspondent banking overheads—not purely technological superiority.
- Programmability and interoperability: Built on blockchain and smart contracts, stablecoins support automated, customizable financial workflows far beyond what traditional APIs can achieve.
However, these benefits come with significant risks:
1. Monetary Policy Challenges
Widespread adoption of privately issued stablecoins could undermine central banks’ control over money supply and interest rates, effectively creating a parallel monetary system outside official oversight.
2. Financial Stability Threats
Stablecoin reserves are often invested in short-term US Treasuries. A liquidity shock in Treasury markets could trigger a "run" on stablecoins, forcing mass asset liquidation and amplifying systemic risk through interconnected financial channels.
3. Digital Dollarization
With nearly all major stablecoins pegged to the US dollar, their global use promotes digital dollar dominance, potentially eroding the role of other currencies—especially in emerging economies.
Three Models for Stablecoin Issuance
Globally, three distinct models have emerged for issuing stablecoins:
1. Private Corporate Model (e.g., USDT, USDC)
Issued by non-bank entities backed by high-quality liquid assets (HQLA), these stablecoins thrive on innovation and market responsiveness. Yet they intensify reliance on the US dollar and lack central bank backstop, posing macro-financial risks.
2. Bank Deposit Tokenization (e.g., JPM Coin)
Banks tokenize customer deposits using blockchain technology. These tokens operate within regulated environments, leveraging existing prudential frameworks. JPMorgan’s JPM Coin has already demonstrated success in institutional settlements. However, scalability and interoperability remain challenges.
3. Wholesale-Retail Dual-Tier Architecture
This model combines the strengths of central bank digital currency (CBDC) and private-sector innovation:
- Wholesale layer: Central banks issue wholesale CBDCs to regulated institutions.
- Retail layer: Licensed financial firms issue retail stablecoins backed by CBDC reserves.
This architecture ensures settlement finality, maintains monetary unity, enables comprehensive supervision, and integrates seamlessly with existing global payment infrastructures like SWIFT and CLS.
Projects like Fnality (UK) and Helvetia (Switzerland) have validated this approach, showing how regulated stablecoins can coexist with traditional finance while enhancing efficiency and security.
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Strategic Considerations for China
China’s financial system differs fundamentally from Western models. It emphasizes state-guided market mechanisms and prioritizes financial stability—a principle reinforced at the 2023 Central Financial Work Conference, which called for robust, end-to-end regulatory oversight.
Given this context, launching privately issued RMB stablecoins without safeguards would pose unacceptable risks. Instead, a more strategic path lies in exploring offshore RMB deposit tokenization within the wholesale-retail dual-tier framework.
Such an approach would allow Chinese banks and financial institutions to issue tokenized deposits denominated in offshore RMB (CNH), backed by wholesale CBDC or reserve assets. This aligns with the Third Plenary Session of the 20th CPC Central Committee’s directive to “develop offshore RMB markets.”
Notably, initiatives like Project Agorá, led by the Bank for International Settlements (BIS) and the New York Fed, are already advancing cross-border deposit tokenization with participation from major global banks—demonstrating growing international consensus on this model.
Yet caution is essential. Unregulated issuance could encourage cross-border arbitrage between onshore and offshore RMB interest rates, exacerbating capital flow volatility.
Beyond Retail Remittances: The Bigger Picture
There’s a common misconception that stablecoin innovation should focus on retail remittances. In reality, retail cross-border payments account for less than 10% of global flows. The vast majority involve institutional transactions—interbank settlements, trade finance, government transfers—that form the backbone of international monetary systems.
Ignoring this reality leads to fragmented innovation. The G20’s cross-border payment roadmap and many stablecoin projects overly emphasize retail use cases, neglecting the foundational role of wholesale markets.
True reform requires a holistic view:
- Wholesale layer strengthens currency status through secure inter-institutional settlement.
- Retail layer enhances accessibility and usability for businesses and individuals.
Only by integrating both can we build a resilient, inclusive, and multipolar digital monetary system.
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Frequently Asked Questions (FAQ)
Q: Are stablecoins safer than traditional cryptocurrencies?
A: Generally yes—because they’re pegged to stable assets like fiat currencies or short-term bonds. However, their safety depends heavily on reserve transparency and regulatory oversight.
Q: Can stablecoins replace traditional banking systems?
A: Not entirely. While they enhance efficiency, especially in cross-border payments, they still rely on regulated entities for custody, compliance, and liquidity management.
Q: Will stablecoins threaten central bank authority?
A: If left unregulated, large-scale adoption could weaken monetary policy effectiveness. That’s why many countries are pursuing regulated models that integrate stablecoins into existing financial frameworks.
Q: What’s the difference between CBDCs and stablecoins?
A: CBDCs are direct liabilities of central banks and represent sovereign currency in digital form. Stablecoins are typically issued by private or commercial entities and must be backed by reserves; their value depends on trust and regulation.
Q: Is China developing a digital RMB stablecoin?
A: China has launched the e-CNY (digital yuan), a central bank digital currency (CBDC), not a private stablecoin. Future developments may include tokenized deposits for offshore use under strict supervision.
Q: How do stablecoins affect emerging markets?
A: They can improve access to global payments but may also accelerate "digital dollarization," undermining local currencies and monetary autonomy unless properly managed.
Final Thoughts
Stablecoins are not just technological innovations—they are potential catalysts for reshaping global finance. For China, the path forward isn’t about racing to launch a private RMB stablecoin but about strategically advancing regulated digital money solutions that support financial stability, RMB internationalization, and global cooperation.
The future belongs to architectures that balance innovation with oversight—the kind embodied in the wholesale-retail dual-tier model, where central banks provide foundational trust and commercial institutions drive user-centric services.
As digital currencies evolve, the focus must shift from hype to sustainable design—one that serves real economic needs, respects regulatory boundaries, and strengthens the integrity of the global financial system.