Former China central bank chief challenges need for stablecoin adoption

The Block

Aug 28, 2025 11:43:56

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China's former central bank governor, Zhou Xiaochuan, has warned of the potential pitfalls of stablecoins, as the nation explores a possible approval of a yuan-based stablecoin.

"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," Zhou said in a closed-door seminar in July, according to notes published Wednesday by think tank CF40.

Zhou, who served as governor of People's Bank of China from 2002 to 2018, made several other arguments against stablecoin adoption. His comments came ahead of news that China's State Council is planning to review a stablecoin roadmap.

Doesn't need stablecoins

The former PBOC governor said that the need to implement stablecoins in the current financial system may be overstated. He argued that only a few financial services could actually improve their efficiency through tokenization and decentralization, calling for an objective review over the real demand for both approaches.

Zhou noted that payment systems in China and other Asian countries already have established mobile-based applications utilizing QR codes and near-field communication (NFC) connected to the banking system, with technological progress being achieved without decentralization.

"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," said Zhou, adding that central bank digital currencies have also contributed to significant progress in the country's payment system.

Risks of multiplier effect

Zhou also warned that issuers might recklessly mint stablecoins without sufficient reserves, and that custodians may fail to perform proper due diligence under the current lack of oversight.

Even with reserves to fully back issuance, Zhou said stablecoins can create a "multiplier effect" as tokens are used in subsequent operations such as loans, mortgages, transactions and revaluations, leaving a larger footprint than the reserve can withstand.

"A possible [bank run] could be several times the issuance reserve," said Zhou, adding that existing stablecoin rules such as the U.S. Genius Act or regulations in Hong Kong are "far from adequate" to deal with such an issue.

Recent reports of China's consideration of allowing yuan-pegged stablecoins mark a contrast with its anti-crypto stance. China continues to ban crypto trading and mining on the Chinese mainland, while Hong Kong has embraced the crypto industry with licensing regimes in place for crypto exchanges and stablecoin issuers.

The country's reported move is likely a reaction to rapid developments in the U.S. to endorse dollar stablecoins as a measure to solidify the dollar's position as the dominant currency. Similar government-led efforts are being spotted in neighboring countries, including Japan and South Korea.

Chinese regulators still appear wary of the potential negative risks, as they recently told local brokers to stop promoting them through research and seminars, according to Bloomberg.

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