China May Join Stablecoin Race, Central Bank Voices Concern

Key Notes

• PBoC Governor Pan Gongsheng highlighted the potential of stablecoins to safeguard against politicized traditional payment systems.
• Former PBoC chief Zhou Xiaochuan warned that dollar-linked stablecoins could accelerate global dollarization, and China needs to act early.
• Morgan Stanley suggests China may use Hong Kong as a pilot zone for offshore yuan-based stablecoins, enabling innovation without violating capital controls.

China’s central bank, the People’s Bank of China (PBoC), has asked government officials to explore using stablecoins for cross-border payments.

This push comes at a time when the US is on the verge of passing the GENIUS Stablecoin Act in the Senate, while cementing the dollar’s dominance through USD-backed stablecoins.

Although China hasn’t officially embraced stablecoins due to its ban on crypto activities, it might be looking to reverse its previous calls. The recent comments from senior PBoC officials have reignited debate over their possible use in cross-border payments.

Pboc governor explains importance of stablecoins

Last month in June, PBoC Governor Pan Gongsheng said that stablecoins have the potential to transform international finance, especially as growing geopolitical tensions expose the vulnerabilities of traditional payment systems.

He further added that stablecoins could help against politicizing and weaponizing traditional payment systems through sanctions.

Former central bank governor Zhou Xiaochuan noted that dollar-pegged stablecoins could accelerate global dollarization.

Related article: Bank of Korea Suspends Next Phase of Its CBDC ProjectAs a result, financial officials from China and Hong Kong highlighted the potential of yuan-backed stablecoin. They noted that it could help China in its long-standing goal of boosting the renminbi’s global presence.

Top Chinese firms like e-commerce giant JD.com announced its plans for seeking stablecoin licenses worldwide, amid the rising adoption worldwide.

Morgan stanley: china could use hong kong for a stablecoin pilot

Morgan Stanley has suggested that China could leverage Hong Kong as a testing ground for offshore yuan-based stablecoins, allowing for experimentation without breaching Beijing’s stringent capital controls.

Speaking to Bloomberg, Robin Xing, chief China economist at Morgan Stanley said:

“Stablecoins are not new currencies, but new distribution channels for existing ones. It is crucial for China to embrace the trend of sovereign currency tokenization to maintain competitiveness in the digital infrastructure race.”

Stablecoin firms like Circle (USDC) have seen roaring success following its recent IPO on NYSE last month. Analysts project the total stablecoin supply could grow to $3.7 trillion by 2030.

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