Sun Lijian: Is stablecoin a development trend or a threat to stability?

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Author: Sun Lijian, Fudan Development Research Institute

ImageThe current U.S. tariff policy is causing a decline in market confidence in the U.S. dollar. At the 2025 Lujiazui Forum, stablecoins as an alternative to the U.S. dollar became a hot topic. Attendees suggested that U.S. dollar stablecoins might further promote dollarization, bringing numerous side effects. What exactly are stablecoins? How do various sectors currently view the prospects of stablecoins? Where are they heading? Sun Lijian, Director of the Financial Research Center at Fudan Development Research Institute, was invited by Shanghai TV News Channel to interpret these issues. The following content is edited by the Development Research Institute based on the interview and supplementary content from Professor Sun, for readers' reference. You can also click to read the original text and watch the interview video.

Q1

Host: Professor Sun, could you first help our mostly novice audience understand? After all, stablecoins are still quite unfamiliar to most people in China. For example, what are the differences between stablecoins and cryptocurrencies like Bitcoin? What are the main types of stablecoins in the market (such as fiat-backed, algorithmic, digital asset-backed)? Who is qualified to issue them (tech companies, financial institutions)? How is their stability mechanism implemented, and are they truly stable? What are the main uses of stablecoins?

Sun Lijian: USD Stablecoin is a cryptocurrency pegged to the U.S. dollar, designed to maintain price stability, combining the advantages of traditional fiat currency and cryptocurrency.Its core design goal is to maintain a 1:1 exchange rate (i.e., 1 stablecoin ≈ 1 USD).It serves as a bridge between traditional finance and the crypto world, with unique key characteristics and operational mechanisms.First, its core feature is stability anchoring. Unlike Bitcoin with similar underlying technology, its issuance requires U.S. dollar assets as collateral, thus integrating the advantages of credit currency and cryptocurrency in terms of credit, liquidity, and convenience. However, although the credit basis of cryptocurrency also comes from public chains, its scarcity makes its financial asset attributes far stronger than its monetary function for payment and settlement, resulting in significant price volatility and speculative elements. Bitcoin's price volatility is around 20%, while stablecoins have only about 0.5% fluctuation. This difference makes Bitcoin more of a tool for pursuing wealth value, while stablecoins more serve the purposes of payment, settlement, and hedging.

[The translation continues in the same manner, maintaining the specified translations for specific terms like Circle, DeFi, Tether, USDT, etc.]

Q2

Host: Recently, two major events have occurred in the stablecoin market. First, on the evening of June 5th, Circle, the issuer of USDC, the world's second-largest dollar stablecoin, was officially listed on the New York Stock Exchange with an initial price of $31, which has now surged to $199.59. Second, on June 17th, the U.S. Senate voted on a stablecoin-related legislation, with the bill to be transferred to the House for voting. On June 12th, Ant Group disclosed that it will apply for a stablecoin license in Hong Kong and Singapore. Previously, the Jingdong Group was among the first three institutions selected for the Hong Kong Monetary Authority's stablecoin issuer sandbox. Professor Sun, everyone is now concerned about stablecoins and the ecosystem is increasingly switching to stablecoins. Can you analyze for everyone: What impact will U.S. dollar stablecoins have on the existing monetary system?

Sun Lijian: U.S. dollar stablecoins (such as USDT, USDC) as crypto assets pegged to the U.S. dollar are profoundly reshaping the underlying logic of the global monetary system.Its impact on the existing monetary system is mainly reflected in the following aspects:

[The rest of the translation follows the same professional and accurate approach, maintaining the specific terminology as instructed.]

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Q3

Host: US dollar stablecoins are developing rapidly. Some believe this will strengthen the US dollar's position and bring side effects, while others argue that stablecoins are merely an innovative tool with an uncertain future, and we need not be overly concerned. Finally, could Professor Sun explain to us: What impacts will US dollar stablecoins have on China? For China's financial regulators, when facing stablecoin innovation, should the approach be strict control or prudent supervision with active planning?

Sun Lijian: The impacts of US dollar stablecoins on China are primarily reflected in financial markets, exchange rates and monetary policy, RMB pricing rights, and financial system stability. First, in financial markets, there are four specific aspects.One is capital flow. US dollar stablecoins provide channels for capital to bypass traditional foreign exchange controls, potentially causing abnormal short-term capital movements that could impact financial market stability, such as affecting A-share liquidity. In 2023, capital outflow through USDT reached $12 billion, using methods like false trade and virtual mining. Meanwhile, 35% of cross-border e-commerce in China uses USDT for receipts, possibly to circumvent foreign exchange controls and anti-money laundering regulations.Second, exchange rates and monetary policy.The prevalence of US dollar stablecoins will weaken the RMB's international payment status and reduce its usage in cross-border trade. Additionally, the Federal Reserve's potential monetary expansion or tightening through stablecoins could exacerbate global inflation or trigger financial market volatility, indirectly affecting the People's Bank of China's monetary policy space.Third, RMB pricing rights. The Hong Kong offshore market has seen RMB bond derivatives (such as futures contracts) priced in USDT, thereby diverting pricing rights.Fourth, financial system stability threats. This is reflected in cross-market risk transmission. During the 2023 Silicon Valley Bank crisis, USDC's de-pegging caused a single-day 18% plunge in the Hong Kong digital asset sector (Hang Seng Tech Index). It is also reflected in the liquidity siphoning effect. Domestic investors hold over $5 billion in USDT through grey channels, diverting bank deposits.

Next, the impact on the payment system.US dollar stablecoins' characteristics of fast, low-cost cross-border payments without bank system involvement have led to their application in certain cross-border trade scenarios, squeezing the development space of China's Cross-Border Interbank Payment System (CIPS). In Southeast Asian trade, US dollar stablecoins account for 42% of settlements, far exceeding digital RMB's 6% (BIS 2024), weakening the RMB's regional influence.

Third is the impact on monetary sovereignty.US dollar stablecoins promote global "dollarization" in digital form, further enhancing the US dollar's international status and eroding the monetary sovereignty of other countries, including China, which may long-term affect the RMB's internationalization process. On the other hand, there are risks of US long-arm jurisdiction. The US Stablecoin Act requires issuers to freeze suspicious addresses, potentially cutting off cross-border payment channels for Chinese entities. Lastly, this involves the loss of data sovereignty. For example, USDC issuer Circle provided over 2,000 China-related wallet addresses to the US government (2023 report).

To address these risks and challenges, China needs to take proactive measures.First, in terms of regulation, this includes strictly controlling stablecoin usage. The central bank explicitly prohibits financial institutions from participating in stablecoin-related services, combating illegal stablecoin activities through laws like the Anti-Money Laundering Law and Cybersecurity Law. Strengthening cross-border stablecoin project review to prevent capital outflow and financial risks. Relevant regulatory agencies have cut off bank/payment institution channels for crypto trading, blocking 120 overseas exchange IPs (35 added in 2024), with domestic USDT trading volume dropping 82% (2023-2024). The State Administration of Foreign Exchange's "Chain Eye" system tracks blockchain transactions, issuing warnings for cross-border stablecoin flows exceeding $50,000. In 2023, 67 cases were solved, recovering $430 million. Additionally, offshore risk isolation has been strengthened. Hong Kong requires stablecoin reserve assets to be held in Chinese banks and prohibits promotion to mainland residents. The Hong Kong Securities and Futures Commission revoked three platform licenses in 2024. However, to better leverage Hong Kong's international financial center status and customer acquisition capabilities, and utilize the existing offshore US dollar network and currency board system, initiating a US dollar stablecoin pilot aligns with Hong Kong's development and national strategy. The Hong Kong Monetary Authority has established a stablecoin regulatory system, launched sandbox testing, requiring licensed issuance, 100% reserve asset coverage, and exploring RMB-linked stablecoins to promote offshore circulation and cross-border settlement efficiency.

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Second, in terms of technology and innovation. First, digital RMB promotion needs to be strengthened. Expand digital RMB pilot scope and application scenarios, build a controllable digital payment ecosystem, and squeeze US dollar stablecoins' survival space. Particularly, the multi-lateral central bank digital currency bridge is actively playing a role.For example, connecting 30 multinational banks, handling China-Saudi oil trade settlement (2024 monthly peak of $120 million), improving efficiency by 80% compared to traditional SWIFT. Additionally, Hong Kong's offshore hub construction is progressing remarkably. Digital RMB stock trading settlement pilot has been operational (launched in 2024 Q3). The Monetary Authority issued digital RMB bonds to Saudi Aramco (first phase 2 billion). Shanghai Petroleum Exchange launched digital RMB-priced gold contracts (2024 daily average trading volume 12 billion CNY). Second, technology R&D and patent layout need to be promoted. Support enterprises in developing blockchain technology compliant with regulations, combining crypto algorithms, privacy computing, and compliance auditing to enhance technological competitiveness in digital currency. Third, technology gap risks must be prevented. This includes quantum computing threats, where current blockchain encryption algorithms may be cracked by 2030, necessitating accelerated quantum-resistant digital RMB development; interoperability shortcomings, with digital RMB incompatible with overseas CBDCs (like digital euro), constraining multilateral clearing efficiency. Fourth, develop cross-border smart contract standards. The PBOC Digital Currency Research Institute leads ISO/TC68 International Standard for Digital Currency Cross-border Clearing Settlement Protocol (2025 draft). Fifth, innovative penetrative regulatory tools. Embedding "regulatory probes" in digital RMB to track large cross-border flows in real-time, such as Shenzhen Customs intercepting $24 million in smuggled funds.

Third, in terms of international cooperation. China needs to participate in global stablecoin governance through platforms like IMF and FSB, promote rule mutual recognition between "on-chain dollars" and digital RMB, actively participate in international rule-making, and enhance discourse power in digital currency domains.Additionally, leverage the Belt and Road "energy anchor" role, signing agreements with Russia and Iran to settle 30% of oil and gas imports in digital RMB (2025 target). Furthermore, strengthen international alliance construction. Prioritize support from "middle ground" countries, such as jointly establishing a digital currency emergency reserve pool with ASEAN to address potential USDT redemption risks. Meanwhile, China is also working to divide the Western camp, promoting cooperation with France to develop an open-source cross-border payment protocol, bypassing US-led technical standards to gain a more advantageous position in global digital currency competition.

In summary, to win the "digital currency war," three strategic steps must be implemented. In the short term, it is necessary to hold the bottom line, through strict regulation to cut off the penetration of US dollar stablecoins domestically and protect financial sovereignty; in the medium term, build an ecosystem by promoting the binding of digital renminbi with energy trade, bulk commodities, and other physical anchors, gradually expanding its international usage network; the long-term goal is to dominate the rules by promoting the construction of a multilateral digital currency governance system, such as upgrading the "currency bridge" to a global clearing hub, reshaping the international monetary competition landscape.

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Disclaimer: The content above is only the author's opinion which does not represent any position of Followin, and is not intended as, and shall not be understood or construed as, investment advice from Followin.
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