Is the "Renminbi stablecoin" about to emerge? Zhou Xiaochuan comprehensively analyzes the risks from "6 major perspectives".

As the market speculates that China intends to promote the "Renminbi stablecoin," former Governor of the People's Bank of China (Central Bank) Zhou Xiaochuan has issued warnings regarding the potential risks of stablecoins from "six major perspectives," particularly emphasizing that the Central Bank should be vigilant against the risks of "excessive currency issuance" and "high leverage amplification."

The "China Finance 40 Forum" published content from Zhou Xiaochuan's speech at a closed-door seminar in July under the title "Multidimensional Review of Stablecoins" yesterday (27th). Zhou Xiaochuan stated that the current discussions on stablecoins are only from a single perspective, and to extrapolate the operation and future prospects of stablecoins, a multidimensional examination is necessary.

1. Central Bank Perspective: Preventing Currency Over-issuance and High Leverage Amplification

Zhou Xiaochuan pointed out that from the perspective of the Central Bank, there are two major risks that stablecoins need to be cautious of: first, the issuer "over-issues currency" without sufficient reserves; secondly, there is the risk of "high leverage amplification," meaning that the operation after issuance can create a multiplier effect of currency derivation.

Zhou Xiaochuan mentioned that some stablecoin issuers may lack sufficient reserves and even generate a multiplier effect through aspects like deposits and loans, collateral, and asset trading, resulting in a risk of bank runs that far exceeds the capacity of reserves. Moreover, existing regulations are far from adequate to cope with the derivatives and amplification.

He believes that the custody of stablecoin reserves should be managed by the Central Bank or institutions recognized by the Central Bank; otherwise, it will be difficult to assure the public. At the same time, regulators need to conduct statistics and calculations on the actual circulation of issued stablecoins; otherwise, the potential scale of redemption risk cannot be determined. The amplification multiplier effect of stablecoins will also provide opportunities for fraud and market manipulation.

2. Perspective of Financial Service Models: The Real Demand for Decentralization and Tokenization

In terms of financial service models, Zhou Xiaochuan reminded that the outside world needs to calmly judge the actual demand for "decentralization" and "tokenization." He emphasized:

Not all types of financial assets are suitable for tokenization, nor are all financial service processes suitable for decentralization.

Zhou Xiaochuan cited an example, stating that retail payments in China and Asia have already achieved high efficiency through mobile payments, digital yuan, and cross-border fast payments. As of now, the centrally managed account system still demonstrates good applicability, and there is insufficient justification for replacing account-based payment systems with comprehensive tokenization.

3. Payment System Perspective: Technical Path and Compliance Challenges

Regarding the upgrade of the payment system, Zhou Xiaochuan believes that efficiency should not be the only consideration; security and compliance must also be taken into account. Compliance aspects such as identity verification (KYC), anti-money laundering (AML), and counter-terrorism financing (CFT) are challenges that stablecoins must face. He candidly stated that the current stablecoin payment business still has significant deficiencies in compliance.

4. Market Trading Perspective: Market Manipulation and Investor Protection

In terms of market trading, Zhou Xiaochuan reminded that cases of price manipulation and fraud in the stablecoin market have already emerged. However, under the improved current institutional framework, whether it is the U.S. "Genius Act", related regulations in Hong Kong, or regulatory provisions in Singapore, these issues have not yet been satisfactorily addressed.

Zhou Xiaochuan pointed out that if market manipulation cannot be effectively prevented, attracting unqualified investors to enter the market will further amplify the risks.

5. Microbehavioral Perspective: Motivations of Each Participant

At the micro-behavioral level, Zhou Xiaochuan pointed out that the issuers of stablecoins are mostly commercial institutions pursuing profits. However, some functions within the payment system belong to infrastructure and public services, and should not be completely dominated by commercial interests.

He believes that it is necessary to examine the motivations of all parties involved and to clearly define which areas are suitable for market entities and which belong to infrastructure; at the same time, we must also be vigilant about the risk of stablecoins being overly used for asset speculation, as deviations in direction may lead to fraud and instability in the financial system.

6. Circulation Path Perspective: The Recycling Mechanism from Issuance to Redemption

Finally, Zhou Xiaochuan reminded that if there is a lack of sufficient demand scenarios, stablecoins may not be able to enter effective circulation, meaning it is possible to obtain an issuance license but be unable to issue; if the main line for payment is not smooth, the main channel for stablecoins to enter circulation will overly rely on the speculation of virtual assets, leading to concerns about health.

In addition, stablecoins are used as a temporary payment medium at the time of transaction, or as a value preservation tool for a certain period, which will affect the supply of stablecoins in the market after issuance.

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