Author: Zhao Yao
On June 6, 2025, the Stablecoin Ordinance of Hong Kong, China officially came into effect. On June 17, the U.S. Senate officially passed the Stablecoin Regulatory Act.
Currently, stablecoins pegged to the US dollar, such as USDT (Tether) and USDC (Dollar Coin), are expanding rapidly around the world. Central banks of various countries are exploring central bank digital currencies (CBDCs), and financial institutions have also launched various tokens (tokenisation), presenting a rich and diverse digital currency ecosystem.
The above news has already set off a wave of discussion on stablecoins, and also raised a question worth pondering: In the global wave of digital currencies, does China need to develop stablecoins?
On June 18, Pan Gongsheng, governor of the People's Bank of China, mentioned "stablecoin" for the first time, pointing out that it "reshapes the traditional payment system from the bottom up, greatly shortens the cross-border payment chain, and also poses huge challenges to financial supervision."
As the world's second largest economy and a leading country in financial technology, how should China continue to promote the internationalization of the RMB and financial innovation under the premise of maintaining financial stability? For example, in the "wholesale-retail" two-tier system, in addition to technology companies, is it worth exploring for banks and financial institutions to issue deposit tokens with offshore RMB characteristics (also known as deposit currency tokenization, which is different from private stablecoins)?
A privately-run stablecoin (stablecoin) is a cryptocurrency that aims to maintain price stability and is usually pegged to a specific asset (such as the US dollar) to avoid the price volatility of traditional cryptocurrencies.
With technical features such as instant settlement and low-cost transfers, stablecoins issued by private institutions (including non-bank institutions, large technology companies, science and technology enterprises, etc.) are developing rapidly around the world.
The global stablecoin market has grown from less than $5 billion at the beginning of 2020 to the current $250 billion, of which US dollar stablecoins account for 99%. Among US dollar stablecoins, USDT accounts for about 70%, followed by USDC. On the one hand, this reflects the strong demand for efficient and low-cost payment methods in the market after the rise of crypto assets, especially De-Fi (decentralized finance); on the other hand, it also fully demonstrates the high concentration of the stablecoin market, which is far more concentrated than the traditional financial market.
This type of stablecoin that is independent of the central bank system brings new opportunities for sovereign states' monetary management, financial stability and macro-prudential policies, but also brings challenges.
In terms of opportunities, private stablecoins have obvious advantages in the efficiency of fund transfer. They can realize all-weather and instant settlement of cross-border fund transfers, greatly reducing transaction time.
At the same time, some popular opinions believe that the cross-border transaction costs of stablecoins are much lower than those of the traditional financial system (down 90% or more). In fact, the cost advantage of stablecoins in cross-border transactions is not entirely due to blockchain technology innovation. According to the author's investigation and research on the front line of business, the fixed cost of a typical B2B (business-to-business) cross-border payment is between US$25 and US$35, of which the account liquidity cost, financial operation cost and compliance cost related to the agency bank network account for approximately 35%, 30% and 20% respectively.
The cross-border transaction costs of stablecoins are relatively low, mainly because the issuers of stablecoins save the various regulatory costs and capital costs borne by traditional financial institutions, and also save the legal costs of "knowing your customer", "three antis" (anti-money laundering, anti-terrorist financing, and anti-weapons of mass destruction financing) and cross-border legal compliance in the circulation link. Currently, stablecoins do not involve the current account costs of the correspondent bank network, currency exchange-related costs, etc. In the future, when stablecoins enter the regulatory compliance framework, they will also bear the various costs that traditional cross-border payments should pay. The cost advantage of cross-border payments still needs to be tested in practice.
In addition, stablecoins have another important advantage, namely the programmability of payment and the composability of assets brought by blockchain and smart contract technology. Smart contracts based on blockchain and their applications are more collaborative, intelligent, and customized than the existing API-based corporate treasury business (also known as cash management business in China), and are the mainstream development direction of digital payment and settlement. At the same time, compared with the relative closedness of the existing payment and settlement system based on the agency bank network, the "one chain, one network, one platform" of stablecoins is more open and inclusive, which helps to improve the availability, globality and inclusiveness of digital financial services.
In terms of challenges, first of all, the monetary policy transmission mechanism may be challenged. Stablecoins are circulated on a large scale in the shadow banking model outside the "central bank-commercial bank" system, which may weaken the central bank's ability to manage money supply and interest rates.
Secondly, financial stability risks increase. First, poor reserve management of stablecoin issuers may trigger a "bank run" risk; second, if there is a "liquidity flash crash" in short-term U.S. Treasury bonds, their safe asset attributes will be shaken, which may amplify market risks several times and transmit them to stablecoins, causing a flash crash in stablecoin prices. In turn, there will be a more significant maturity mismatch between stablecoins on the liability side and treasury assets on the asset side. Once a large-scale bank run occurs on the liability side, it will be transmitted to the asset side, forcing stablecoin issuers to sell treasury assets in a concentrated manner, triggering systemic financial risks.
Finally, 99% of stablecoins are anchored to the US dollar, and their borderless cross-border circulation has already caused the problem of digital "dollarization". From a macro-prudential perspective, stablecoins may increase the volatility of cross-border capital flows and pose a challenge to the financial stability of emerging market countries.
Three major distribution models
At present, the issuance of stablecoins can be roughly divided into three models. The first is the pure private company issuance model, that is, private stablecoins, which are prepared for issuance with high-quality liquid assets (HQLA), especially US short-term Treasury bonds. USDT and USDC are typical representatives of this model. They rely on market mechanisms to operate, have strong innovation vitality, and can quickly respond to changes in market demand. However, this model has the various challenges brought by stablecoins mentioned above. Most importantly, since it is mainly anchored by the US dollar, it strengthens the international dominance of the US dollar, which is not conducive to the diversification of the international monetary system.
The second is the bank deposit token model, such as JP Morgan Chase's JP.M Coin, which is essentially the tokenization of traditional bank deposits. This model is issued by licensed banks and supported by their balance sheets, making full use of the existing banking regulatory framework, with relatively mature risk control and deep integration with existing financial services. JP Morgan Chase's JP.M Coin has achieved success in the field of large-value inter-institutional settlements and significantly improved settlement efficiency. However, this model also faces challenges such as limited innovation, insufficient interoperability, and the potential strengthening of the market advantages of large banks.
The third is the "wholesale-retail" two-tier system of stablecoin issuance, which uses wholesale CBDC (central bank digital currency) as a settlement support to build a retail stablecoin payment system. This model continues the two-tier structure of the traditional financial system, that is, the central bank is responsible for the issuance and management of wholesale CBDC, and commercial institutions or payment service providers (PSPs) are responsible for retail payment services for the public. This model has four advantages:
First, it is not to break away from the existing two-tier system. By inheriting and optimizing the two-tier system architecture, the stablecoin can be "upholding integrity and innovation". At the wholesale level, the central bank provides settlement support for stablecoin issuers through wholesale CBDC, ensuring that the settlement finality of the payment system is backed by the credit of the central bank, effectively avoiding the sale of risk-free assets such as government bonds by stablecoin issuers under the original conditions of the lack of a "lender of last resort" and the resulting financial stability risks; at the retail level, stablecoin issuers and payment service providers are responsible for providing stablecoin services to the public and maintaining direct contact with customers. This design avoids the central bank's direct operational pressure on massive retail users, prevents financial disintermediation risks, and maintains the key financial functions of existing financial intermediaries.
Second, it ensures the unity of currency. The two-tier system architecture can avoid the risks and efficiency losses caused by the coexistence of too many currency forms. In this model, although there may be multiple licensed institutions participating in the issuance of stablecoins at the retail level, the value support of these stablecoins comes from the central bank's wholesale CBDC. This ensures that stablecoins are essentially different transaction media of the same legal currency, rather than competing currencies, and will not cause problems such as price system chaos, payment system fragmentation, and currency substitution.
The third is to bring all financial activities under supervision. Under this model, institutions involved in the issuance and service of retail stablecoins must obtain corresponding financial licenses and implement regulations including capital adequacy ratio, reserve management, information disclosure, customer identity identification, etc. in accordance with the penetrating supervision requirements of "same business, same risk, same supervision".
Fourth, it does not challenge the existing international financial operating framework. At the wholesale level, through cooperation among central banks, a cross-border settlement mechanism for wholesale CBDC can be established, and a super-sovereign digital currency (such as digital SDR) based on a basket of wholesale CBDC can be constructed to provide a financial safety net for the global liquidity of stablecoins. At the retail level, this model can be compatible and interconnected with the existing correspondent bank network (SWIFT), card network organizations (VISA, Mastercard, UnionPay International, etc.), and payment system interconnection (FPS interconnection, CLS, etc.), which will not only help stablecoins play a constructive role in international financial governance, but also will not generate the sunk costs required to establish a new international payment system.
In fact, the UK Fnality project has been exploring the "wholesale-retail" two-tier system of stablecoin issuance since 2018. The project is participated in and jointly initiated by many major financial institutions around the world. Its goal is to use distributed ledger technology (DLT) to build a regulated token payment network to provide safe and efficient solutions for wholesale payments and cross-border settlements. The innovative project Helvetia of the Swiss National Bank and the Swiss Stock Exchange is also a practical case of the "wholesale-retail" two-tier system model, demonstrating the feasibility and multiple advantages of wholesale CBDC. The above cases show that this model can truly achieve the policy goal of "regulated stablecoins".
Thoughts and suggestions
As many countries and regions around the world have successively brought stablecoins under regulation, whether China should issue RMB stablecoins and how to issue RMB stablecoins have also become topics worthy of discussion.
First of all, it is important to note that the financial system structure in China is fundamentally different from that in the West. The United States has a highly market-oriented financial system. As the world's main reserve currency, the U.S. dollar enjoys "arrogant privileges". In addition, developed economies generally face high government debt pressure, so policy departments naturally support private stablecoins more. China's financial system emphasizes the combination of an effective market and an effective government. The 2023 Central Financial Work Conference emphasized the need to comprehensively strengthen financial supervision and effectively prevent and resolve financial risks. Before building a new regulatory capability of "institutional supervision, behavioral supervision, functional supervision, penetrating supervision, and continuous supervision", it is still necessary to carefully evaluate the pros and cons of privately issued stablecoins.
Secondly, we need to think about the differences in national financial strategies that stablecoins can carry. The mission of the US dollar stablecoin is to consolidate the international status of the US dollar, while China's promotion of the internationalization of the RMB is to better serve the high-quality development of the real economy. Only when stablecoins are organically integrated into the institutional opening-up process in the financial field can their strategic and economic value be brought into play.
Thirdly, the disintermediation of "point-to-point" actually ignores the dual information asymmetry of time and space in international trade settlement. In the long-term cross-border trade activities, people gradually realized that cross-border trade (logistics) and cross-border payment (financial flow) could not keep pace, and then invented bills of exchange; in order to avoid loss of goods or financial fraud, various intermediary institutions such as banks, insurance, notarization, and inspection were gradually introduced, and various trade settlement tools such as letters of credit, collection, and wire transfers were developed, thereby promoting the development and prosperity of trade finance. In the complex and diverse trade scenarios, the scenarios where wire transfers, which are closest to "point-to-point" payments, can be applied are actually very few. How much advantage "point-to-point" payment can play in cross-border trade still needs to be tested in practice.
Finally, the emergence of digital currencies, including retail CBDC and stablecoins, does not mean the birth of a new international monetary system that "transcends sovereignty". From the wholesale level, wholesale CBDC, as a central bank currency, has the unquestionable finality of settlement and can give full play to its "payment is settlement" advantage.
The Decision of the Third Plenary Session of the 20th CPC Central Committee requires the development of the offshore RMB market. In the "wholesale-retail" two-tier system, in addition to non-financial institutions such as technology companies, the issuance of deposit tokens with offshore RMB characteristics by banking and financial institutions is also a direction worth exploring. For example, Project Agorá, a deposit token cross-border payment project jointly led by the Bank for International Settlements (BIS) and the New York Federal Reserve (NY Fed) and a number of central banks, has been participated by many large financial institutions around the world and is continuing to expand its member network.
It should be noted that when considering issuing offshore RMB stablecoins, it is necessary to incorporate the onshore and offshore RMB interest rate spreads into the prudent framework. The rash release of offshore RMB stablecoins may attract some issuers to engage in cross-border arbitrage activities, triggering interest rate and exchange rate arbitrage risks.
We need to recognize the systematic deviations in the current development of global digital currencies. In the field of cross-border payments, cross-border remittances at the retail level account for less than 10% of the total global cross-border payments, and the market size is relatively limited; while cross-border payments between institutions (including governments, international financial organizations and financial institutions) account for an absolute proportion, and are the key force affecting the global cross-border payment ecosystem and even the international monetary system. Unfortunately, both the G20 cross-border payment roadmap and the stablecoin market players have focused too much attention on the cross-border remittance field at the retail level, and have clearly not paid enough attention to cross-border payments at the wholesale level, which has made it difficult for global digital currency innovation to form a joint force and exacerbated the fragility of the international monetary system.
Reforming the global cross-border payment system requires more comprehensive and systematic thinking. Wholesale cross-border payments are the micro-foundation of the international monetary system and a key factor affecting the international status of currency. The scale of cross-border remittances at the retail level is relatively small, but it plays an important role in improving the international availability and ease of use of currency. The two complement each other and cannot be neglected. The "wholesale-retail" two-tier system is based on this systematic concept, organically combining the two levels, paying attention to both the basic role of the wholesale level and the inclusive value of the retail level.
