Yang Tao from the Chinese Academy of Social Sciences: Understanding the Theoretical and Practical Logic of Renminbi Stablecoins

Recently, with the U.S. Senate passing the "Genius Act" (the "2025 U.S. Stablecoin Innovation and Establishment Act"), the Hong Kong Legislative Council passing the "Stablecoin Regulation Draft," and the stablecoin giant Circle officially listing on the New York Stock Exchange, stablecoins have once again sparked heated discussions both domestically and internationally. To explore the impact and influence of stablecoins, whether from the perspective of the international monetary system's game or the compatibility of traditional finance and Web3 finance, it is essential to clarify their inherent theoretical and practical logic first.

Fiat-Collateralized Stablecoins: Integrating into the Sovereign Credit System

Looking back in history, currency has evolved from shells and precious metals to modern credit money. Among its functions of value measurement, circulation means, payment, and storage, the core function lies in being a promise and carrier of payment. With the advent of the electronic and digital age, emerging payment methods have gradually taken two paths: "account-based" and "value-based (Token)." The former mainly relies on the traditional banking system, with identity verification as the core; the latter may detach from the bank account system, evolving from early non-bank electronic wallets to a new model based on "Token," where the focus shifts from identity verification to value proof and anti-counterfeiting.

In the evolution of "Token-based" systems, due to the instability of value presented by fully decentralized cryptocurrencies (such as Bitcoin), their asset attributes gradually surpass their currency attributes, making it difficult to fulfill the function of anchoring payments. This has led to the exploration of various stablecoins, including fiat-collateralized stablecoins, cryptocurrency-collateralized stablecoins, commodity-collateralized stablecoins, and algorithmic stablecoins. Among them, fiat-collateralized stablecoins have a massive issuance volume and are linked to real-world assets, making them the focus of regulatory and legislative constraints in various countries; the latter three face numerous challenges in technology, models, and rules, leading to a continuous decline in their influence within the stablecoin system, gradually being viewed as new types of crypto assets with different risks. It should be noted that stablecoins always face the "impossible triangle" of currency value stability, capital efficiency, and decentralization, with fiat-collateralized stablecoins sacrificing decentralization and accepting traditional trust risks.

It is well known that the establishment of modern sovereign states and central banks accompanies the process of currency transitioning from non-state to state. The foundation of their existence is sovereign credit and legal protection. However, this does not mean that non-sovereign, locally applied private currencies completely disappear; their foundation may be credit protection at different levels. The birth of Bitcoin and blockchain has sparked market demand for decentralized currency "algorithmic consensus credit," leading to the emergence of a complex world of cryptocurrencies. However, the ideal of decentralization ultimately struggles to withstand the financial issues of Web3, and when it is sufficient to challenge sovereign credit, it inevitably brings about a "comprehensive rectification" of centralization against decentralization.

In this process, central bank digital currencies (CBDCs) in various countries represent the first round of reform attempts. As a form of centralized currency embracing decentralized technology, their essence remains "account-based" rather than "Token-based," making it difficult to be compatible with the world of cryptocurrencies As a regulatory exploration of fiat-collateralized stablecoins in the second round of attempts, it seeks to further enhance the centralized regulatory attributes of stablecoins that have already shown centralized characteristics. Essentially, it aims to achieve a fusion of "account-based" and "token-based" systems, balancing identity verification and value proof in payments. In fact, as a compromise between sovereign currencies and private cryptocurrencies, existing fiat-collateralized stablecoins have gradually weakened their decentralized nature and have integrated into the sovereign credit system, becoming a kind of "currency board system" arrangement in the Web3 world. Fiat-collateralized stablecoins essentially become legally binding fiat "shadow tokens" established based on various blockchain standards such as ERC20 and operating on different mainstream blockchain public networks.

Common Characteristics of Global Stablecoin Regulation

After clarifying the above theoretical logic, we can see that starting from the European Union's "Regulation on Markets in Crypto-Assets" (MiCA) in 2024, global regulators have focused on fiat-collateralized stablecoins, presenting several common goals and characteristics. First, it continues the core regulatory approach of non-bank payment institutions. As is well known, with the rise of non-bank third-party electronic wallets, the EU has long maintained regulatory tracking and improvement for electronic money issuers, while the U.S. has done the same for money transfer institutions. Existing laws in various countries or regions include essential elements for regulating non-bank payment institutions, such as access standards, anti-money laundering (AML) and "know your customer" (KYC) requirements, reserve funds and disclosures, asset segregation, and redemption.

Second, it strengthens financial consumer protection and enhances the compliance of financial market infrastructure. The influence of stablecoins in cross-border payments, on-chain settlements, and asset trading is continuously expanding. Considering that stablecoins carry many gray and even black areas in cross-border payments and on-chain financial activities such as DeFi, which have led to numerous disputes and lawsuits in various countries in recent years, it is indeed necessary to regulate stablecoins and their trading settlement mechanisms along the lines of the "Principles for Financial Market Infrastructures (PFMI)" (an international standard jointly published by the Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions).

Third, it strives to expand monetary sovereignty in the Web3 world. Behind fiat-collateralized stablecoins lies a fusion of market trust and concerns regarding fiat credit. Undoubtedly, this can release the influence of mainstream fiat currencies in the digital space and further expand the "long-arm jurisdiction" power of sovereign states in the Web3 world, which has become a new arena for future international monetary and financial competition.

Fourth, it demonstrates a cryptocurrency-friendly policy stance to attract capital or fund aggregation. Although existing laws in relevant countries and regions impose "tight restrictions" on stablecoins and other innovations, for the cryptocurrency industry that has long been on the edge of regulation and fearful of penalties, this is largely interpreted as a positive signal. Whether it is the U.S. government's actions partly stemming from electoral and political considerations, or other countries or regions aiming to attract participants from the thriving cryptocurrency industry, it is all about striving for as much capital aggregation and market activity enhancement as possible in the context of numerous challenges facing global economic growth Five is the monetary financial and fiscal goals that feedback to the real world. For example, when relevant legislation strictly requires stablecoin issuers to hold an equivalent amount of fiat currency and high liquidity assets such as bonds, it can effectively support the credit and liquidity of their fiat assets. For some countries with unsustainable government debt, it may be possible to postpone short-term debt risks and gain new tax revenue from the cryptocurrency industry.

Global Stablecoin Development Still Faces Multiple Issues

Of course, although stablecoin legislation brings new development opportunities for cryptocurrencies, there are still some inherent problems and challenges. For example, first, stablecoins, as a "quasi-currency bureau" institutional arrangement in the Web3 world, also face defects, such as the inability to effectively respond to the volatility of the cryptocurrency (asset) market and potential liquidity shocks, and the fragility of fiat currency and its assets in the real world may also transmit to the crypto world, thereby increasing its instability.

Second, in recent years, under the guidance of the "G20 Roadmap for Strengthening Cross-Border Payments," countries have been actively promoting solutions to traditional cross-border payment issues, gradually focusing on three aspects: interoperability and scalability of payment systems; legal, regulatory, and supervisory frameworks; cross-border data exchange and information standards. In fact, the real pain point of cross-border payments lies not in the advancement of technology, but in the differences in rules, regulations, standards, and norms. Once mainstream regulatory game rules are incorporated, the efficiency of stablecoin cross-border payments will inevitably be affected.

Third, the so-called stablecoin promotes the construction of a "chain-based Bretton Woods system," which still has inherent unsustainability. We know that the "Triffin Dilemma" foresaw the disintegration of the Bretton Woods system, emphasizing that if a country's currency is to assume global monetary functions, it must simultaneously meet the conflicting goals of "providing sufficient liquidity" and "maintaining currency value stability," ultimately leading to system unsustainability. Under the "new Triffin dilemma," if the US dollar stablecoin is supported by safe assets and questionable US dollar assets to enhance its stability and credibility, it attempts to feed back the stability of US dollar assets, and its logic is difficult to be self-consistent. Although stablecoins increase the resilience of the international monetary system, they cannot solve their inherent flaws due to the abandonment of "supra-sovereignty."

Fourth, there are issues of international coordination and interoperability. The current global monetary system and payment system resemble a large complex network system, facing many compatibility issues. When this rigid system incorporates stablecoins, coupled with the fact that the legal formulation, implementation, and application in various countries are still in their infancy, it will inevitably lead to more regulatory friction and challenges. The cross-border interoperability of stablecoins with traditional systems also faces more obstacles, which may narrow the scope of stablecoin usage.

Fifth, the balance of its risks and value. Any financial innovation cannot be merely a "zero-sum game" for a few participants, but must bring tangible benefits to economic growth, price stability, and employment. In addition to cross-border payments, the on-chain transactions supported by stablecoins need to further demonstrate their value in serving the real economy. At the same time, if more risk shocks occur in the cryptocurrency (asset) market under weak regulation or outside regulation in the future, it will also have far-reaching negative impacts on stablecoins

China Should Focus on Exploring Renminbi Stablecoins

In this context, there are several considerations regarding China's response strategies. First, fiat-collateralized stablecoins have gradually manifested as an extension of sovereign credit, thus their regulatory logic is basically aligned with the existing regulatory framework for electronic money issuance institutions. In the face of the global stablecoin market and regulatory trends, China should first expedite the promotion of stablecoin-related legislation, and in the medium to long term, explore comprehensive legislation for cryptocurrency regulation, constructing a tiered and phased "long-arm jurisdiction principle" for China's Web3 finance. To build a self-controlled, secure, and efficient financial infrastructure, the most crucial aspect is to achieve legal control. The global cryptocurrency market has already formed an independently operating quasi-financial system, and stablecoins are an important entry point for regulatory intervention; the related legal games have become a vital part of countries maintaining their rights and participating in competition in the future.

Second, in the short term, China's exploration of stablecoins should focus on Renminbi stablecoins, quickly securing a place in the global fiat-collateralized stablecoin market, with reserve management corresponding to highly liquid, low-risk assets such as Renminbi cash, bonds, or digital Renminbi. First, consideration could be given to exploring the issuance and management of onshore Renminbi stablecoins in compliant areas such as the Shanghai Free Trade Zone, establishing specific regulatory rules, and selecting certain banks and non-bank payment institutions for pilot programs, allowing qualified specific institutions, enterprises, or individuals to hold them, while also drawing on the "electronic fence" mechanism of free trade zone accounts to ensure that corresponding capital cross-border flows are in a more controllable state. Second, for domestic institutions issuing offshore Renminbi stablecoins abroad, in addition to complying with the regulatory rules of the offshore issuance location, they must also meet domestic requirements for risk management, reserve management, and capital flow management, primarily targeting offshore institutions, enterprises, or individuals. Of course, exploring offshore Renminbi stablecoins in Hong Kong is also related to strengthening and enhancing Hong Kong's status as an international financial center, which is one of the focal points for implementing the spirit of the Central Financial Work Conference. Third, for foreign institutions issuing offshore Renminbi stablecoins abroad, an application and filing principle could be adopted to guide them in effectively facilitating the overseas circulation of Renminbi and the internationalization of Renminbi.

Finally, regarding the issuance and holding of Renminbi stablecoins by domestic entities, as well as the positioning of fiat-collateralized stablecoins such as the US dollar and euro in the domestic market, and various on-chain financial products based on stablecoins, a cautious attitude should be temporarily maintained. At the same time, in conjunction with the process of financial opening and capital account reform, while adhering to financial security, stability, and consumer protection, lessons and experiences from overseas regulation should be referenced, and continuous research and observation should be conducted to prepare for future legislation and regulation.

Risk Warning and Disclaimer

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