Former Governor of the People's Bank of China Zhou Xiaochuan: Stablecoins are unnecessary, warns that the "multiplier effect" could trigger a financial storm.

As China is considering approving a stablecoin pegged to the renminbi, former People’s Bank of China Governor Zhou Xiaochuan has unusually questioned its necessity and warned of the systemic risks that stablecoins may bring. He stated that even with sufficient reserves backing it, a stablecoin could still trigger a crisis similar to a bank run due to the “multiplier effect.”

Background: China’s stablecoin policy enters discussion phase

Policy Dynamics: According to reports, the State Council of China is reviewing the roadmap for stablecoin development, which may allow the issuance of stablecoins pegged to the Renminbi.

Policy Comparison:

Mainland China: Still prohibits cryptocurrency trading and mining

Hong Kong: Actively embracing the cryptocurrency industry, launching a licensing system for exchanges and stablecoin issuers.

International background: Governments of countries such as the United States, Japan, and South Korea are promoting their own stablecoins to strengthen the international status of their currencies.

Zhou Xiaochuan’s core viewpoint: stablecoins are “not necessary”

Zhou Xiaochuan (Governor of the People’s Bank of China from 2002 to 2018) stated at the CF40 think tank seminar: “We must be wary of the risk that stablecoins are overly used for asset speculation, as directional deviations may trigger fraud and instability in the financial system.”

Why is it unnecessary?

1. The existing payment systems are efficient and low-cost.

2. China and many countries in Asia have popularized QR code and NFC payments, directly connecting to the banking system.

3. Technological advancement does not have to rely on decentralization to be achieved.

4. Central Bank Digital Currency (e-CNY) has improved payment efficiency.

5. Stablecoins find it difficult to identify significant cost advantages within the existing system.

Maximum Risk: Leverage Effect and Insufficient Regulation

Zhou Xiaochuan pointed out that even if stablecoins are fully backed, potential risks may still be magnified due to the reuse of financial markets and leverage operations:

Multiplier effect: Stablecoins can be used for lending, collateral, trading, and revaluation, ultimately the market circulation may be several times the reserves.

Bank run risk: Once market confidence is shaken, the scale of the bank run may far exceed the capacity of reserves.

Insufficient regulation:

1. The U.S. “GENIUS Act” and the existing regulations in Hong Kong are “far from sufficient” to prevent such risks.

2, Chinese regulatory agencies have recently required brokerages to stop promoting stablecoins through research and seminars.

International and geopolitical factors

United States: Accelerating the promotion of the US dollar stablecoin to consolidate the global dominance of the dollar.

China: While promoting the internationalization of the Renminbi, it remains highly vigilant against the risks of stablecoin.

Neighboring Country Dynamics: The governments of countries such as Japan and South Korea are also advancing their own stablecoin projects.

Analysis: If China launches a renminbi stablecoin, it will be a direct response to the U.S. digital dollar strategy. However, achieving a balance between promoting internationalization and preventing financial risks remains the biggest challenge.

Cryptocurrency Market Perspective

Cryptocurrency supporters believe that Zhou Xiaochuan’s concerns highlight the structural issues of centralized stablecoins and provide narrative space for decentralized stablecoins and non-sovereign assets like Bitcoin.

However, for the Chinese market, the policy direction and regulatory framework will be the key factors determining whether stablecoins can be implemented.

Conclusion

Zhou Xiaochuan’s warning has dampened the discussion on China’s stablecoin. As major economies around the world rush to advance their own stablecoins, how China finds a balance between promoting the internationalization of the renminbi and preventing systemic risks will be the policy focus for the coming years.