Li Yang: In the face of the stablecoin wave, China needs to advance on two tracks.

Li Yang, a member of the Academic Division of the Chinese Academy of Social Sciences and chairman of the National Institute of Finance and Development, recently delivered a keynote speech on "Several Important Issues in Current China's Macroeconomy" at the main forum of the CITIC Construction Investment Securities Investment Summit. Li Yang suggested that attention should be paid to the development of stablecoins, and in the face of the stablecoin wave, China should advance on two tracks.

In response to the recent market discussions regarding stablecoin legislation, Li Yang, a member of the Chinese Academy of Social Sciences and chairman of the National Institute of Financial and Development Laboratory, pointed out that this situation reveals the key role stablecoins play in the contemporary international monetary and financial landscape, and the essence, impact, and their relationship with sovereign currency need to be clarified urgently. The core value of stablecoins lies in their efficient payment and settlement function, which are based on blockchain peer-to-peer payments, where payment is settlement, offering significant advantages in payment efficiency and cost. This is the fundamental attribute of irreplaceable currency. Unlike cryptocurrencies such as Bitcoin that experience drastic price fluctuations, stablecoins maintain their value stability by anchoring to real assets (mainly US dollar assets). The leading stablecoins represented by USDT and USDC have over 90% of their asset composition in short-term US Treasury bonds and repurchase agreements. This mechanism makes stablecoins a bridge connecting the virtual currency world and the traditional fiat currency system, significantly enhancing cross-border payment efficiency and reducing costs.

Li Yang stated that the U.S. is promoting stablecoin legislation, with the legislative purpose clearly serving the interests of the U.S. dollar: to promote the modernization of dollar payments, to strengthen and consolidate the international status of the dollar, and to create trillions of new demand for U.S. Treasury bonds. The stablecoin mechanism cleverly transforms the expansion of the crypto market into an extension of dollar influence on the blockchain.

Li Yang pointed out that in the process of studying various self-proclaimed "coins", one must always keep in mind a principle: "As long as sovereign states exist, the sovereign nature of currency will not change. Currency sovereignty is an important component of national sovereignty, representing the highest authority of each country to issue and manage its own currency domestically, as well as the fundamental right to independently implement its foreign monetary policy and participate equally in handling international monetary and financial affairs. Therefore, the launch of various digital assets, including stablecoins, does not imply the emergence of a new international monetary system that 'transcends sovereignty'.

Therefore, regardless of how stablecoins develop, when used for international payments, they cannot bypass the 'exchange' regulation between various sovereign currencies. However, given that payment clearing is the most fundamental function of money that cannot be replaced, "the stablecoin payment system continues to grow, and while it cannot create new international currencies, it has effectively eroded the functions of existing sovereign currencies. This has had a significant impact on the monetary systems of existing countries and even the international monetary system," Li Yang emphasized.

He believes that in the face of the stablecoin wave, China needs to advance comprehensively on two fronts.

On the one hand, "Since any form of stablecoin cannot avoid the issue of monetary sovereignty, firmly promoting the internationalization of the renminbi remains a core task in nurturing a strong currency (renminbi). In this sense, all the efforts we have made in the past, including: expanding local currency swap agreements, promoting the renminbi cross-border payment system, improving the global clearing service network for the renminbi, and enhancing the use of the renminbi in investment and trade in Belt and Road countries, should be steadfastly continued."

On the other hand, "It must be noted: the trend of the integration and development of stablecoins, cryptocurrencies, and traditional financial systems will be difficult to reverse. Stablecoins and cryptocurrencies will achieve complementary development with central bank digital currencies, comprehensively improving payment efficiency and reducing payment costs, reconstructing the global payment system, and driving the development of decentralized finance (DeFi)." Li Yang specifically pointed out: "Although in previous years some countries only supported central bank digital currency experiments, and some countries focused on supporting the innovative development of stablecoins and cryptocurrencies, most have recently shifted towards a model that supports the joint development of all three. The European Union, Japan, the UAE, Singapore, and Hong Kong are typical representatives of this integrated development." Of course, in promoting the development of stablecoins, "it is necessary to properly address issues such as the replacement of sovereign currencies, money laundering, user rights protection, and the loss of control over monetary policy."

Regarding the further development path, Li Yang believes: "We should fully utilize Hong Kong's favorable conditions, relying on its status as a financial center and the existing institutional foundation (such as USDT's headquarters in Hong Kong), to develop offshore RMB stablecoins and build controllable international payment channels. That is, to develop RMB stablecoins through offshore means. In fact, in 2019, Tether, the world's largest stablecoin issuer, has already issued offshore RMB stablecoins, with a current circulation exceeding 20 million. "Of course, we should also create conditions to actively and steadily develop RMB stablecoins by leveraging the status of Shanghai as an international financial center."

He pointed out that stablecoins are not new independent currencies; rather, they are a technological upgrade and extension of the dollar system in the digital age. Their rise highlights the core position of payment and settlement functions and the key role of the account system. Countries are competing to legislate and regulate stablecoins, trying to control this key node that links the virtual and the real. For China, strengthening the economic fundamentals, solidifying the foundation of the sovereign currency, effectively utilizing the offshore market in Hong Kong to develop RMB stablecoins, and pragmatically advancing the internationalization of the RMB are fundamental ways to respond to changes and maintain monetary and financial security.