China’s Central Bank Slams Stablecoins as ‘Threat,’ Vows Crackdown on USDT and USDC

Introduction

China’s central bank intensified its stance against stablecoins, with People’s Bank of China (PBoC) Governor Pan Gongsheng calling dollar-pegged tokens a threat to global financial stability and monetary sovereignty. Speaking at the Financial Street Annual Meeting in Beijing, Pan said stablecoins amplify vulnerabilities in the financial system and fall short of core compliance standards, including AML and KYC, warning they can facilitate illicit finance. He vowed continued cooperation with law enforcement to crack down on crypto trading and speculation on the mainland, reiterating China’s zero‑tolerance policy toward private digital currencies while promoting the state-backed digital yuan (e‑CNY) as a safer alternative. 

The warning comes as the stablecoin market swells to roughly $308 billion, led by Tether (USDT) and USD Coin (USDC), which account for about 87% of supply, according to DefiLlama. Reports from a16z note stablecoins processed as much as $27 trillion in settlements over the past year, with adjusted figures near $9 trillion—more than half of Visa’s volume—highlighting their growing role in cross-border payments and crypto liquidity. International regulators, including voices at recent IMF/World Bank meetings, have echoed concerns over systemic risk, compliance gaps, and potential channels for money laundering, putting additional scrutiny on global stablecoin oversight and risk management frameworks.

China’s posture contrasts with Hong Kong’s more open approach: the city launched a dedicated stablecoin licensing regime and has attracted interest from firms such as Circle and Standard Chartered. Still, Beijing has reportedly pressed mainland tech giants Ant Group and JD.com to pause Hong Kong stablecoin plans, signaling that currency-like tokens should remain under state control. Chinese economists warn the rise of USD-backed stablecoins could complicate the yuan’s internationalization unless the e‑CNY can match their efficiency and reach.

Background

China’s central bank has intensified its stance against stablecoins, with People’s Bank of China (PBoC) Governor Pan Gongsheng describing them as a threat to global financial stability and to the monetary sovereignty of smaller economies. Speaking at the Financial Street Annual Meeting in Beijing, Pan said stablecoins—crypto tokens pegged to fiat currencies such as the U.S. dollar—amplify vulnerabilities in the financial system and fall short of core compliance requirements like anti-money-laundering (AML) and know-your-customer (KYC) standards. Beijing plans to continue coordinating with law enforcement to crack down on crypto trading and speculation domestically, reaffirming its zero‑tolerance approach to private digital currencies while promoting the state-backed digital yuan (e‑CNY) as a safer, regulated alternative.

What are stablecoins and why is China concerned?

Stablecoins are cryptocurrencies designed to maintain a stable value by being pegged to assets like the U.S. dollar or short‑term Treasuries. Leaders include Tether (USDT) and USD Coin (USDC). Traders use them for dollar liquidity on exchanges, cross‑border transfers, and as settlement rails in decentralized finance (DeFi).

China’s key concerns:

• Monetary sovereignty: Widespread use of USD‑pegged stablecoins can dollarize digital payments and reduce a country’s control over money and capital flows—especially in emerging markets.

• Compliance gaps: Without robust AML/KYC controls, stablecoins can be misused for illicit finance. Pan said they “still cannot meet the basic requirements of financial supervision.”

• Systemic risk: Rapid growth and interlinkages with trading platforms raise concerns around runs, asset backing, and contagion during stress.

These concerns are not unique to China. The Financial Stability Board (FSB) and the International Monetary Fund (IMF) have urged comprehensive regulation of “global stablecoin arrangements,” emphasizing reserve quality, redemption rights, and risk management. The EU’s Markets in Crypto‑Assets regulation (MiCA) and emerging U.S. proposals similarly target reserve audits, liquidity, and supervision.

How big is the stablecoin market now?

According to DefiLlama, the stablecoin market is about $308 billion in capitalization, with USDT and USDC comprising roughly 87% of supply. Research from a16z suggests stablecoin settlements reached as high as $27 trillion over the past year, with adjusted figures near $9 trillion—more than half of Visa’s global payment volume—highlighting stablecoins’ growing utility for near‑instant, 24/7 transfers and crypto market liquidity.

This scale has elevated stablecoins from niche instruments to systemic payment rails in crypto, drawing scrutiny from central banks concerned about concentration, reserve quality, and potential for flight during stress.

Beijing’s policy and the rise of the digital yuan (e‑CNY)

Mainland China has banned most crypto trading and mining activities since 2017–2021 and has framed private digital currencies as disruptive to financial order. In parallel, the PBoC has piloted the digital yuan (e‑CNY), a central bank digital currency (CBDC) designed for retail payments under full regulatory oversight. The e‑CNY aims to:

• Provide a digital cash alternative with programmable features.

• Support compliance and financial stability.

• Maintain monetary control and visibility over payment flows.

Chinese economists have warned that the global rise of USD‑backed stablecoins could complicate the renminbi’s internationalization. Wang Yongli, a former Bank of China deputy governor, argued that if the e‑CNY cannot match stablecoins’ efficiency and reach, China’s currency ambitions could face obstacles. He has urged accelerating e‑CNY development and exploring offshore models via Hong Kong.

Mainland vs. Hong Kong: A split approach

While Beijing maintains strict controls, Hong Kong has taken a more open route with a dedicated stablecoin licensing framework. The Hong Kong Monetary Authority (HKMA) and Securities and Futures Commission (SFC) have invited applications, drawing interest from Circle, Standard Chartered, and others. However, reports indicate mainland regulators asked Ant Group and JD.com to pause their Hong Kong stablecoin plans—signaling Beijing’s view that currency‑like tokens should remain state‑controlled.

This “one country, two systems” divergence allows Hong Kong to position as a global digital asset hub under rigorous licensing, while mainland policy focuses on stability and state‑run digital currency infrastructure.

Global regulatory momentum

International bodies are converging on stricter standards for stablecoins:

• Reserve Quality: High‑quality liquid assets (e.g., T‑bills), segregation, and daily transparency.

• Redemption Rights: Clear, timely redemption at par in normal and stressed conditions.

• Risk Controls: Governance, audits, concentration limits, and operational resilience.

• AML/KYC: Full compliance to mitigate illicit finance risks.

The EU’s MiCA sets a comprehensive playbook for “asset‑referenced tokens” and “e‑money tokens.” In the U.S., several bipartisan proposals target reserve audits and disclosure. The UK and Singapore are also advancing bespoke stablecoin regimes focused on prudential oversight and consumer protection.

What it means for users, exchanges, and issuers

• Users and traders: Expect tighter compliance on‑ and off‑ramps, more identity verification, and potential geofencing for mainland users. In Hong Kong and other regulated hubs, licensed stablecoins may offer clearer protections and redemption assurances.

• Exchanges and custodians: Enhanced due diligence on stablecoin reserves, audits, and issuer risk. Contingency planning for redemptions and stress scenarios will be critical.

• Issuers: Strong governance, daily reserve reporting, high‑quality collateral, and robust AML/KYC are becoming baseline requirements to access major markets.

If China’s stance hardens further, usage of USD‑pegged stablecoins within mainland channels could diminish, while cross‑border activity may migrate to licensed venues like Hong Kong or to compliant alternatives with strong transparency.

Bottom line

China’s renewed warnings frame stablecoins as a systemic risk and a challenge to monetary sovereignty, reinforcing a policy path that favors the regulated digital yuan over private, dollar‑linked tokens. Globally, however, regulation—not prohibition—is becoming the dominant approach: jurisdictions are crafting strict licensing regimes that emphasize reserves, transparency, and consumer protection. For market participants, the direction of travel is clear—stablecoins that can meet bank‑grade standards on reserves, audits, and compliance are most likely to achieve durability and broad acceptance in the next phase of crypto’s payment infrastructure.