The story behind China's decision: Why is it firmly rejecting stablecoins?

Analysis by Expert Wang Yongli, Former Deputy Governor of the People’s Bank of China

Background: The global race for stablecoins has begun

Since Tether issued USDT in 2014, the US dollar stablecoin has been operating for over a decade. To date, they control more than 99% of the global stablecoin market share, dominating both in market value and trading volume.

After President Trump was re-elected, he publicly supported Bitcoin and other crypto assets, triggering a new wave of speculative trading. The US and Hong Kong hurried to implement stablecoin legislation, sparking lively discussions: should other countries develop their own fiat-backed stablecoins, especially the renminbi (both domestically and offshore)?

For China, this question is not just about technological trends—it directly relates to the country’s monetary policy, financial security, and global standing.

Why are non-dollar stablecoins unlikely to develop?

Any country wanting to issue a non-dollar fiat stablecoin faces a fundamental problem: lack of a strong ecosystem.

The success of US dollar stablecoins relies on three factors:

• The US dollar is the most liquid international reserve currency
• The US has long adopted a tolerant policy towards crypto assets
• A complete operational system supporting 24/7 global transactions

In contrast, non-dollar stablecoins have limited development space:

• Within the scope of the issuing country’s monetary sovereignty (very narrow)
• On the proprietary e-commerce platforms of individual companies (hard to expand)
• International level: Almost nonexistent

Without widespread application platforms and lacking distinctive features compared to USDT, non-dollar stablecoins will find it very difficult to survive amid increasing regulatory scrutiny.

US stablecoin legislation: Modest commitments and hidden risks

US stablecoin legislation (effective from July 18) requires:

Reserve control:

• Reserves must be 100% or more (cash, short-term government bonds, repo agreements)
• US customers must keep their funds in US banks
• No interest or profit payments allowed

Strict supervision:

• KYC, AML, FTC compliance mandatory
• Systems must have the ability to freeze accounts per government orders
• Monthly reserve asset audits

However, these regulations still have loopholes:

❌ Reserve risk: Although a 100% reserve requirement is set, if government bonds decline in value, shortages could still occur.

❌ Diverse stablecoins: If different issuers have varying reserve structures, US dollar stablecoins will not be fully uniform—opening opportunities for price discrepancies and market manipulation.

❌ DeFi risks: Even if issuance does not exceed initial levels, allowing decentralized finance to lend stablecoins could generate derivatives and issuance beyond limits.

❌ Supervision challenges: Non-financial organizations issuing stablecoins are very difficult to control in practice.

Domino effect: Stablecoin legislation could self-destruct stablecoins

An unexpected consequence of legislation is: When stablecoins are legalized, banks will enter the market.

Current phase (before legislation):

• Banks are not allowed to participate in crypto asset transactions
• Opportunities fall into private companies’ hands
• Stablecoins are unregulated → Huge profits → Attractive

Future phase (after legislation):

• Banks are fully licensed to participate
• They will tokenize fiat deposits (tokenized deposits) on the blockchain
• This can completely replace stablecoins as a bridge between the crypto world and the real world
• Traditional financial products (stocks, bonds, ETFs) will be tokenized on the blockchain as RWA (Real-World Assets)

Result: Traditional stablecoins may become obsolete. Banks—with their entire regulatory infrastructure and credibility—will become the true “stablecoins.”

This trend has already started in the US and is hard to stop. Stablecoin legislation could cause a severe counterproductive effect, potentially wiping out stablecoins as we know them.

Why does China reject the stablecoin path?

###Current advantage: No need for a renminbi stablecoin

China already possesses what other countries are trying to build:

• Global leadership in mobile payments
• Digital renminbi widely deployed
• A complete domestic payment system

Developing a digital renminbi stablecoin would not bring additional benefits domestically. And internationally? The digital renminbi stablecoin will struggle to compete with USDT, which already holds 99% of the market share.

###National security risks are paramount

Stablecoins have a dangerous trait: They leverage borderless blockchain technology to conduct 24/7 transactions with less oversight.

Money laundering, illegal cross-border transfers, fraud—these activities become exponentially easier.

Even worse: The US controls major global blockchains and large exchanges. If China develops a digital renminbi stablecoin based on the USDT model:

• Not only will it be difficult to challenge USDT’s dominance
• But it will also depend on the US system
• Affect tax management, foreign exchange, cross-border capital flows
• Directly threaten sovereignty over the renminbi

This is not a technological or efficiency issue. It is a national security issue.

Instead: Promote digital renminbi innovation

In November, the People’s Bank of China announced:

• Optimize the digital renminbi’s position in the monetary system (adjust from M0 to a more appropriate position)
• Establish an international digital renminbi operation center in Shanghai (for cross-border cooperation)
• Set up a management center in Beijing (to develop and maintain the system)

This is a clear signal: China chooses to accelerate the digital renminbi, not stablecoins.

Official decision: Stablecoin ban

On November 28, the People’s Bank of China and 13 ministries held an emergency meeting to:

• Affirm that stablecoins are a form of virtual currency
• Ban entirely the issuance and trading of stablecoins
• Crack down on crypto asset speculation activities

This disappoints those expecting China to “open up” to stablecoins. In reality—this policy is entirely clear and will not change.

Conclusion: Two different paths

US: Create stablecoin legislation to control, thereby expanding the influence of the US dollar, USDT, and the US payment system.

China: Reject the stablecoin route because:

1. No real economic benefit
2. Excessive national security risks
3. Has better tools: digital renminbi

Instead of chasing the stablecoin trend, China chooses to focus on developing the digital renminbi, establishing a leading international advantage, and building a new, fairer, safer global monetary and financial system.

Wang Yongli and other experts continuously warn: In the increasingly fierce international monetary competition, security cannot be negotiated. China is right to reject an easy but risky path.