The Rise of Stablecoins in a Digital Currency Landscape
On June 6, 2025, Hong Kong's Stablecoin Ordinance took effect, followed by the U.S. Senate passing a stablecoin regulatory bill on June 17. These developments underscore the rapid expansion of dollar-pegged stablecoins like USDT and USDC, alongside central bank digital currencies (CBDCs) and institutional tokenization efforts worldwide.
Key Question: Should China develop its own stablecoin ecosystem amidst this global digital currency wave?
Opportunities and Challenges of Private Stablecoins
Private stablecoins—cryptocurrencies pegged to assets like the USD—offer:
- Instant cross-border settlements (24/7)
- Lower transaction costs (theoretically up to 90% reduction)
- Programmable payments via blockchain smart contracts
However, challenges persist:
- Monetary Policy Risks: Shadow banking-style circulation outside central banking systems may weaken monetary control.
Financial Stability Concerns:
- "Runs" on poorly managed reserves
- Contagion risks from U.S. Treasury liquidity crises
- Digital Dollarization: 99% of stablecoins are USD-anchored, exacerbating capital flow volatility in emerging markets.
👉 Explore how stablecoins reshape finance
Three Stablecoin Issuance Models
| Model | Example | Pros | Cons |
|---|---|---|---|
| Private Company (HQLA-backed) | USDT, USDC | Market-responsive innovation | Reinforces USD dominance |
| Bank Deposit Tokens | JP.M Coin | Mature risk frameworks | Limited interoperability |
| Wholesale-Retail Two-Tier | Fnality Project | CBDC-backed stability | Complex regulatory coordination |
Why the Two-Tier System Stands Out
- Central Bank Anchoring: Wholesale CBDCs ensure settlement finality.
- Currency Uniformity: Multiple retail stablecoins derive value from a single CBDC.
- Regulatory Compliance: Full licensing requirements for issuers.
- Global Compatibility: Integrates with existing systems like SWIFT and card networks.
Case Studies:
- UK's Fnality Project (since 2018)
- Switzerland's Helvetia initiative
Strategic Considerations for China
Unique Financial Context
- China's "effective market + proactive government" approach contrasts with Western systems.
- 2023 Central Financial Work Conference emphasized risk containment before innovation.
RMB Internationalization Pathways
Offshore RMB Stablecoins:
- Banks issuing deposit tokens (e.g., Project Agorá)
- Must address onshore/offshore interest rate differentials
Wholesale Focus:
- Institutional payments dominate cross-border flows (90%+ volume)
- Retail remittances offer limited scalability
Critical Insight: Digital currencies don’t replace sovereignty—wholesale CBDCs remain foundational for "payment-as-settlement" efficiency.
👉 Learn about CBDC innovations
Recommendations
- Prioritize Two-Tier Systems to balance innovation with stability.
- Expand Offshore RMB Tools via BIS collaborations.
- Mitigate Arbitrage Risks through coordinated interest rate policies.
- Reform Global Payments by addressing wholesale-retail synergies.
FAQ
Q: Are stablecoins really cheaper for cross-border payments?
A: Current savings stem from avoiding regulatory costs—long-term savings post-regulation remain unproven.
Q: Could RMB stablecoins challenge USD dominance?
A: Only if deeply integrated into trade finance systems beyond remittances.
Q: What’s the biggest risk for China?
A: Premature liberalization triggering capital flow volatility.
Q: How do CBDCs differ from stablecoins?
A: CBDCs are sovereign money; stablecoins are private instruments with varying backing.
Q: Is blockchain essential for stablecoins?
A: Yes—smart contracts enable programmability unmatched by traditional APIs.