Yang Tao: China should develop a yuan-backed stablecoin ASAP
CASS economist calls for prompt stablecoin legislation and phased rollout of “long-arm jurisdiction” for cryptocurrencies in Web3 finance regulation.
This is the third in a series of articles to explore the ongoing discussions surrounding stablecoins in China, written by Yang Tao, Deputy Director of the National Institution for Finance & Development, formerly the Financial Laboratory of the Chinese Academy of Social Sciences (CASS). In 2015, the NIFD and 25 other institutes were highlighted as the first batch of “state high-end think tanks,” where it is the only one specialising in finance.
Yang recommends that China prioritise the development of a yuan-backed stablecoin to secure a foothold in the global market for fiat-collateralised stablecoins. Over the medium and long term, he calls for the formulation of comprehensive laws regulating the broader cryptocurrency ecosystem. Yang also advocates a tiered, phased approach to establishing China’s extraterritorial regulatory reach—or “long-arm jurisdiction”—in the realm of Web3 finance.
The article was originally published on 21st Century Business Herald, a business newspaper in China, on June 14. It is also accessible on the National Institution for Finance & Development’s official website and WeChat blog.
杨涛:理解人民币稳定币的理论与实践逻辑
Yang Tao: Understanding the Theoretical and Practical Logic of Yuan-Backed Stablecoins
The recent passage of the GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins Act of 2025) by the U.S. Senate, Hong Kong’s Legislative Council approval of the Stablecoins Bill, and the listing of stablecoin giant Circle on the New York Stock Exchange have reinvigorated global and domestic debates around stablecoins. To grasp the impact and strategic significance of stablecoins—whether in the context of competition in the international monetary system or the integration of traditional finance with Web3 innovations—one must first understand their underlying theoretical and practical logic.
Fiat-collateralised stablecoins: integrating into the sovereign credit system
Throughout history, currency has evolved from shells and precious metals to modern forms of credit money. While it serves multiple functions—a medium of exchange, a unit of account, a store of value, and a standard of deferred payment—its fundamental role has always been to act as a promise and a medium for settling transactions.
With the rise of the electronic and digital age, new payment methods have emerged, following two distinct paths: "account-based" and "value-based (Token)." The former primarily relies on the traditional banking system, with identity verification as its core. In contrast, the value-based model may depart from the banking system, evolving from early non-bank electronic wallets into a new "Token-based" model. The focus is no longer on identity verification but on valuation and anti-counterfeiting measures.
In the development of the "Token-based" system, fully decentralised cryptocurrencies like Bitcoin have shown instability in their value. As a result, their role as assets gradually outweighs their currency functions, making them unsuitable for anchoring payments. This has prompted the emergence of various stablecoins, including fiat-collateralised stablecoins, cryptocurrency-collateralised stablecoins, commodity-collateralised stablecoins, and algorithmic stablecoins.
Among these, fiat-collateralised stablecoins have become the primary focus of regulatory and legislative scrutiny in many countries due to their large issuance volumes and their linkage to real-world assets. The other three categories, however, face significant challenges related to technology, models, and regulations. Their influence within the stablecoin ecosystem has steadily diminished, and they are now viewed as new types of cryptocurrency with varying risks.
Stablecoins, as a whole, continually face the “impossible trinity” of price stability, capital efficiency, and decentralisation. Fiat-collateralised stablecoins, in particular, sacrifice decentralisation, thereby accepting the traditional trust risks.
It is well known that the establishment of modern sovereign states and central banks marked the transition from non-state to state-issued currency. The foundation of such systems rests on sovereign credit and legal protection. However, this does not mean that private, non-sovereign currencies have completely disappeared; they continue to exist based on varying degrees of credit assurance. The advent of Bitcoin and blockchain technology ignited demand for “algorithmic consensus credit” of decentralised currency, paving the way for a complex ecosystem of cryptocurrencies. However, the ideal of decentralisation ultimately struggles to overcome the financial challenges of Web3. When decentralised systems challenge sovereign credit, centralisation inevitably responds with a “comprehensive restructuring” of the decentralised model.
Central bank digital currencies (CBDCs) represent the first wave of reform attempts, blending centralisation with decentralised technology. However, their core nature remains account-based rather than token-based, limiting their compatibility with the cryptocurrency ecosystem.
The second wave has focused on establishing regulatory frameworks for fiat-collateralised stablecoins, aiming to reinforce the centralised regulated features of stablecoins that already exhibit centralised tendencies. This wave seeks to bridge the gap between account-based and token-based systems by balancing identity verification with valuation in payment infrastructure.
As a pragmatic compromise between sovereign currencies and private cryptocurrencies, fiat-collateralised stablecoins have gradually relinquished their decentralised characteristics, aligning more closely with sovereign credit systems. In effect, they are evolving into a kind of “currency board system” within the Web3 landscape. Functionally, they serve as “shadow tokens” of fiat currencies. Issued according to blockchain protocols such as ERC20, these stablecoins operate across major public blockchain networks while remaining subject to stringent legal oversight.
Common features of global stablecoin regulation
Once the theoretical logic is clarified, it becomes apparent that since the 2024 European Union’s Markets in Crypto-Assets Regulation (MiCA), global regulators have converged in their focus on fiat-collateralised stablecoins, reflecting several shared goals and characteristics.
Foremost among these is the extension of the regulatory approach applied to non-bank payment institutions. With the rise of non-bank electronic wallets, both the EU and the United States have long maintained continuous oversight of electronic money issuers and money transfer institutions. Current legislative frameworks across jurisdictions now incorporate a similar suite of requirements for stablecoin issuers, including admission standards, anti-money laundering (AML) and Know Your Customer (KYC) protocols, reserve requirement and disclosures, and asset segregation and redemption mechanisms—all foundational elements of non-bank payment regulation.
Second, regulatory efforts aim to strengthen financial consumer protection and improve compliance within market infrastructure. Stablecoins are playing an increasingly prominent role in cross-border payments, on-chain settlements, and asset transactions. However, their expanding use in areas such as cross-border payments and decentralised finance (DeFi) has exposed significant legal and regulatory grey zones—some bordering on black markets—which have already led to numerous disputes and legal actions worldwide.
In this context, regulating stablecoins and their transaction and settlement mechanisms in accordance with established international consensus is critical. Specifically, alignment with frameworks such as the Principles for Financial Market Infrastructures (PFMI)—issued by the Committee on Payments and Market Infrastructures (CPMI) and the International Organisation of Securities Commissions (IOSCO)—is essential.
Third, regulatory efforts seek to extend monetary sovereignty in the Web3 world. While fiat-collateralised stablecoins reflect both market confidence in and concerns about fiat currencies, they undoubtedly serve as instruments through which sovereign currencies can assert influence in the digital realm. This development enables sovereign states to expand their “long-arm jurisdiction” within Web3 ecosystems, positioning stablecoins as a new front in the international monetary and financial competition.
Fourth, regulators are adopting a crypto-friendly posture to attract capital and funds. While existing legislation in various jurisdictions has placed certain technological innovations under strict scrutiny, the cryptocurrency industry—long accustomed to operating at the margins of regulation and wary of enforcement—often interprets these developments as encouraging signs.
Whether partly driven by political and electoral considerations, as in the United States, or by efforts to attract participants from the rapidly expanding crypto sector in other countries and regions, these regulatory initiatives share a common aim: to maximise capital inflows and stimulate market activity at a time when global economic growth is under considerable pressure.
Fifth, regulatory frameworks are designed to serve real-world monetary and fiscal objectives. For instance, by requiring stablecoin issuers to maintain fiat currency, government bonds, or other highly liquid assets equivalent to the value of outstanding stablecoins, these regulations help reinforce the creditworthiness and liquidity of fiat assets. For governments grappling with unsustainable levels of public debt, such mechanisms could alleviate short-term debt pressures and simultaneously generate new tax revenues from the cryptocurrency sector.
Global stablecoin development still faces multiple challenges
Of course, while stablecoin legislation presents new opportunities for the cryptocurrency sector, several inherent risks and challenges remain. First, the “quasi-currency board” model of stablecoins has notable limitations. It struggles to manage the volatility of cryptocurrency markets and potential liquidity shocks. Moreover, the vulnerability of fiat currency and its assets can be transmitted into the crypto ecosystem, further destabilising it.
Second, under the G20 Roadmap for Enhancing Cross-border Payments, countries have in recent years actively stepped up to address longstanding challenges in the cross-border payment landscape. These efforts have focused on three key areas: interoperability and scalability of payment systems; legal, regulatory, and supervisory frameworks; and standards for cross-border data exchange and information sharing. In reality, the core obstacle to improving cross-border payments lies not in technology but in the divergence of rules, regulations, and standards across jurisdictions. As stablecoins are brought into mainstream regulatory frameworks, their operational efficiency in cross-border transactions will inevitably be affected
Third, the notion of stablecoins establishing a “Bretton Woods system on the blockchain” is inherently unsustainable. The Triffin Dilemma, which foretold the collapse of the Bretton Woods system, highlighted a structural contradiction: any national currency serving as the global reserve must simultaneously ensure adequate liquidity and currency stability, two goals that are fundamentally at odds. This dilemma ultimately contributed to the system’s demise.
Today, a “new Triffin Dilemma” is emerging with USD-backed stablecoins. These stablecoins are anchored to U.S. dollar assets that are themselves increasingly subject to credibility concerns to enhance their own stability and trustworthiness. Yet they simultaneously attempt to reinforce the stability of the U.S. dollar, creating a circular dependency that exposes a fundamental logical inconsistency. Although stablecoins may contribute to greater resilience in the international monetary system, they fall short of addressing their structural weaknesses in the absence of a supranational monetary framework.
Fourth, international coordination and connectivity pose challenges. The existing global monetary and payment systems form a vast and intricate network already burdened by compatibility issues. The integration of stablecoins into this rigid structure, amid the nascent legal frameworks across jurisdictions, will inevitably generate greater regulatory friction and challenges. Achieving cross-border interoperability between stablecoins and traditional financial systems will encounter further barriers, likely constraining the scalability of stablecoins.
Fifth, maintaining a balance between risk and value is essential. Financial innovations should not be the game of a select few; they must deliver tangible benefits such as economic growth, price stability, and job creation. Beyond enhancing cross-border payments, stablecoin-backed blockchain transactions must further prove their value in serving the real economy. If the cryptocurrency or crypto-asset market continues to experience risk shocks in the absence of robust regulation, these disruptions will inevitably produce profound negative effects on stablecoins.
China should focus on exploring yuan-backed stablecoins
In this context, here are several thoughts on China’s response strategy.
First, fiat-collateralised stablecoins have increasingly evolved into extensions of sovereign credit, making their regulatory logic similar to that applied to traditional electronic money issuers. In light of global stablecoin developments and shifting regulatory trends, China should prioritise the stablecoin-related legislation, while also preparing to establish a comprehensive regulatory framework for cryptocurrencies over the medium to long term, establishing China’s “long-arm jurisdiction” in Web3 finance in a tiered and phased manner.
To build an autonomous, controllable, secure, and efficient financial infrastructure, the critical step is ensuring China’s legal control. The global cryptocurrency market has already taken shape as a self-operating, quasi-financial system, with stablecoins representing a key entry point for regulatory engagement. Legal disputes over this issue have become a pivotal front through which countries safeguard their interests and take part in global competition.
Second, in the short term, China’s stablecoin efforts should concentrate on developing a yuan-backed stablecoin to establish a foothold in the global fiat-collateralised stablecoin market as soon as possible. Reserve regulation should rely on high-liquidity, low-risk assets such as RMB cash, government bonds, or digital yuan.
One viable path forward is to pilot the issuance and management of onshore yuan-backed stablecoins within the Shanghai Free Trade Zone, supported by a dedicated regulatory framework and involving a select group of banks and non-bank payment institutions. These stablecoins could be held by qualified institutions, enterprises, and individuals. At the same time, the “electronic fence” mechanism built into free trade zone accounts could serve as a model for more effective control over cross-border capital flows.
Second, domestic institutions issuing offshore yuan-backed stablecoins overseas should be required to comply with domestic regulations on risk management, reserve requirement, and capital flow control, while also meeting the regulatory requirements of the jurisdictions in which they operate. These stablecoins should primarily be held by overseas institutions, enterprises, or individuals. Moreover, advancing offshore yuan-backed stablecoin initiatives in Hong Kong would support the government’s objective to “consolidate and upgrade the status of Hong Kong as an international financial centre,” a key priority highlighted in the Central Financial Work Conference.
As a third pathway, foreign institutions issuing offshore yuan-backed stablecoins abroad could be brought under an application and filing mechanism, designed to guide their operations in a manner that supports the cross-border use of the yuan-backed and advances the currency’s internationalisation.
Lastly, a prudent approach should be taken toward the issuance and holding of yuan-backed stablecoins by domestic entities, the status of foreign fiat-collateralised stablecoins (such as the USD and EUR) within China, and the development of blockchain-based financial products that utilise various stablecoins.
This approach should be aligned with the broader agenda of financial opening up and capital account reform. China should draw on international regulatory best practices and experiences while safeguarding financial security, stability, and consumer protection. Continuous research, monitoring, and assessment will be essential to inform the design of future legislative and regulatory frameworks.
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