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Caution on Stablecoin Risks and Overuse
Zhou Xiaochuan, former governor of the People’s Bank of China (PBOC), has issued a stark warning regarding stablecoins amid China’s exploration of a yuan-backed stablecoin approval. Speaking at a closed-door seminar in July, Zhou cautioned,
“Be wary of the risk of stablecoins being overused for asset speculation, as a deviation in direction could trigger fraud and instability in the financial system,”
as noted by think tank CF40.
Questioning the Need for Stablecoins
Zhou argued that the current financial infrastructure in China and much of Asia is already efficient through mobile payment systems utilizing QR codes and NFC technology. He stressed that these advances, combined with central bank digital currencies (CBDCs), have significantly modernized payments without requiring decentralized stablecoins.
He emphasized,
“After years of development, it has become very efficient and low-cost, leaving very limited room for any new entrant to reduce costs and make profits in this field.”
Risks of Issuance and Multiplier Effects
Another concern Zhou highlighted involves potential reckless issuance of stablecoins without adequate reserves. He warned of the “multiplier effect,” where stablecoins are used in various financial operations—loans, mortgages, transactions—that could amplify systemic risk beyond their backing.
“A possible [bank run] could be several times the issuance reserve,” he said.
Zhou also criticized existing regulations, including the U.S. Genius Act and Hong Kong rules, as insufficient to address these risks effectively.
China’s Cautious Stance Amid Global Moves
China’s exploration of yuan-pegged stablecoins contrasts with its continued ban on crypto trading and mining on the mainland. Meanwhile, regions like Hong Kong have adopted crypto-friendly licensing regimes. Zhou’s warnings reflect broader regulatory wariness as China monitors global efforts, especially in the U.S., Japan, and South Korea, to institutionalize stablecoins.
According to Bloomberg, Chinese regulators have recently instructed local brokers to stop promoting stablecoins through research and seminars, underscoring ongoing caution.
