Li Yang, Chairman of the National Financial and Development Laboratory: Five Discussions on "Stablecoins"

1. Why should we pay attention to stablecoins?

During the global financial crisis in 2008, an individual using the pseudonym "Satoshi Nakamoto" published the white paper "Bitcoin: A Peer-to-Peer Electronic Cash System," proposing the concept of decentralized currency. Since then, various digital currencies and cryptocurrencies have emerged one after another. According to incomplete statistics, there are now over 1,000 different cryptocurrencies.

Among them, the development of stablecoins is particularly noteworthy. Since the launch of the first stablecoin (USDT) in 2014, the development of stablecoins has withstood multiple risk shocks and has once again entered a rapid development track since the second half of 2023. At the beginning of 2020, the total market value of global stablecoins was about $5 billion, but by May 2025, it had skyrocketed to $250 billion, achieving an astonishing 50-fold growth in five years.

Why is the development of stablecoins highly valued worldwide? There are two reasons:

First, stablecoins are related to the latest developments in science and technology and their widespread application in the financial sector. As is well known, science and technology are the primary productive forces, and economic development and human progress are driven by technological advancements. Therefore, my experience in research over the years is that any technological development related to economic growth and financial innovation must be taken seriously and studied diligently. Moreover, a clear trend is that the development of stablecoins is driving a comprehensive iteration and upgrade of the entire monetary and financial infrastructure.

Second, at least eleven countries and regions, including the United States, have entered the legislative process regarding the development and regulation of stablecoins (among them, on July 17, the U.S. "Guidance and Establishment of the American Stablecoin National Innovation Act" (hereinafter referred to as the "GENIUS Act") was passed with high votes in both houses of Congress, and on July 18, President Trump signed the bill—editor's note). It should be noted that these countries and regions operate under a parliamentary decision-making system. Once a proposal enters the legislative process and is passed, and then signed by the head of the executive, it constitutes the law of that country and forms a corresponding system. If government departments do not implement this system, it is illegal, and the head of the executive cannot change it at will. Today, the United States still occupies the world's leading position in the economy, trade, and finance, and its stablecoins already exist legally, which we cannot avoid in future interactions with the country. For such a fait accompli, we must take it seriously and adopt proactive measures.

2. The development of stablecoins: Maintaining the dollar or creating a new international monetary system?

The legislative explanation of the U.S. "GENIUS Act" clearly states that there are three goals for promoting the development of stablecoins: First, to promote the modernization of the U.S. payment and financial system; second, to consolidate and strengthen the international status of the dollar; third, to create trillions of dollars in new demand for U.S. Treasury bonds.

One of my basic views is that, to date, all self-proclaimed non-legal "coins" are not currencies, so we cannot use the theories and methods of studying currency to study these "coins"; doing so may lead us astray.

Stablecoins are also not currencies, so the development of stablecoins has not created a new international monetary system. However, stablecoins have a very important characteristic: on the one hand, they maintain a 1:1 exchange relationship with the dollar as legal tender, becoming a legal token of the dollar; on the other hand, thousands of transactions involving cryptocurrencies that float between legal and illegal can be conducted using stablecoins for payment. In this way, stablecoins become an intermediary connecting virtual currencies and legal tender, connecting the virtual world and the real world; grasping stablecoins means grasping the entire "crypto circle." In this regard, the development of stablecoins is of extreme importance. Of course, this key point has been consciously "ignored" in the explanations of the bills passed by the U.S. Congress.

It is evident that the main purpose of launching stablecoins is to maintain and strengthen the international status of the dollar, and the cycle of stablecoins—dollars—U.S. Treasury bonds creates a new expansion scenario for the dollar. This design ensures that the expansion of the crypto market not only does not weaken the status of the dollar but also extends the privilege of seigniorage into the blockchain world, allowing the dollar hegemony to undergo an adaptive evolution in the digital realm. In 1944, the Bretton Woods system backed the dollar with gold; in 1971, the petrodollar system empowered the dollar with commodities; in the 1980s, U.S. government debt provided a new source of liquidity for the dollar; today, the mechanism of stablecoins uses blockchain technology to create a new real application scenario for the dollar. In fact, every dollar stablecoin circulating in cross-border payments is an on-chain expansion of dollar influence. As U.S. Treasury Secretary Yellen bluntly stated: "We will use stablecoins to maintain the dollar's status as the world's primary reserve currency." Currently, over 90% of the underlying assets of major stablecoins like USDC and USDT are dollars and dollar-denominated assets.

At present, the primary function of stablecoins is still a decentralized payment mechanism. Stablecoins that facilitate decentralized on-chain payments are, to some extent, competing with the SWIFT system, which has been controlled by the U.S. I believe that how the U.S. handles the relationship between these two systems in the future is worth studying.

According to financial theory, currency has six functions, among which all other functions can be substituted, but the payment and settlement function is exclusive to currency, and stablecoins precisely focus on payment and settlement, with efficiency far exceeding traditional mechanisms. From my observation, the domestic industry and academia have focused too much on the "creation" of currency while neglecting the payment and settlement function of currency, leading to a considerable degree of unregulated development by technology companies in China's payment and settlement field, which caused some confusion in the currency sector in previous years.

Another role of stablecoins is to become a new vehicle for the U.S. to promote dollarization under digital conditions. Previously, due to severe inflation, many Latin American countries have "re-dollarized," and now, through dollar stablecoins, this new form of dollarization is being implemented more smoothly. In this process, the U.S. has been able to "harvest more countries' resources."

In summary, I believe that the "GENIUS Act" undoubtedly allows the U.S. to seize the high ground in this competition concerning the future of currency and the international monetary system, putting immense pressure on other major competing currencies such as the euro, yen, pound, and renminbi. This means that the global expansion of dollar stablecoins may weaken the status and influence of other currencies in the international monetary system, which is one of the main reasons we need to pay attention to and study stablecoins seriously.

3. Returning to the basic theory of currency

The latest developments in the "crypto circle" force us to return to the most fundamental currency theories time and again.

Now, it seems that no one can provide a universally accepted definition of currency. According to finance textbooks, currency is "a special commodity that serves as a general equivalent." The essence of this definition is "general equivalent," meaning it serves as the pricing standard and transaction intermediary for all other goods; as for the positioning of "special commodity," it clearly needs to keep pace with the times, as commodity money has long exited the historical stage. I believe that "general equivalent" highlights the pricing and payment settlement functions of currency, which should become the basic methodology for studying all currency and financial issues.

I believe that when studying currency issues, one must have a "historical" perspective. In Marxism, discussing the "historicity" of a thing indicates that it is not inherent: it has conditions and reasons for its emergence and must have conditions and reasons for its demise. Therefore, as Marx profoundly pointed out, research on all things should primarily answer the three major questions of "why, how, and what."

Engels more generally elaborated on the historical view of Marxism: The issues of currency and commodity economy did not always exist; since they are not innate, they will eventually disappear. Engels clearly stated that the emergence of currency is due to division of labor, exchange, and private ownership: division of labor and exchange can improve efficiency, which is a natural law, and they will certainly not disappear. However, when private ownership exists, exchange must have a medium that is mutually recognized by all economic entities. Once the world moves toward a common good, division of labor and exchange will still exist, but there will be no need for currency as an intermediary. The purpose of revisiting this philosophically rich research method is to illustrate my stance on studying stablecoins: in my view, technically, stablecoins may very well be a realistic path leading to the demise of currency (i.e., answering the "how" question).

In addition to Marxism, Keynes also made significant contributions to the study of currency issues, mainly in three aspects: First, Keynes systematically discussed the existence of deposits as a form of currency. He pointed out that in reality, loans create deposits, and most payments and settlements are realized through the "transfer" of deposits between bank accounts. Since deposits are currency and are created by commercial banks, the greatest dissent in our country regarding the promotion of central bank digital currency comes from commercial banks, because the "to C" construction mechanism of central bank digital currency eliminates the mechanism by which commercial banks create deposits through loans, thereby undermining the foundation of commercial banks' existence. Second, he proposed the concept of "endogenous money." There is a perennial proposition in monetary economics: "Does money have any use?" Regarding this issue, there have always been two opposing views: the "exogenous" and "endogenous" views of money—if money is confirmed to be "exogenous," then it is "useless," and its supply mainly affects prices; conversely, if money is confirmed to be "endogenous," it is considered "useful," because money is created through the "loan-deposit" process, and loans clearly have a significant impact on the real economy, affecting economic growth, interest rates, and prices comprehensively. In other words, the theory of "endogenous money" forms the theoretical basis for contemporary central bank macroeconomic regulation, which also stems from Keynes's research. Third, Keynes was an advocate of the de-monetization of gold, arguing that currency should be "manageable," and its concept should be continuously abstracted, as reflected in his definition of currency: "Calculating currency, that is, debt, prices, the general purchasing power that currency relies on to manifest, is the basic concept of currency theory."

Another economist, Minsky, also made significant contributions to the study of currency and provided foresight and targeted research on the current phenomenon of rampant cryptocurrencies. This pioneer of the "de-nationalization of currency" theory believes that anyone can issue currency; the key is whether someone accepts it. As long as someone accepts it, what is issued is currency. This definition highlights the essence of currency as credit. In his view, there is no need to make a very clear distinction between currency and non-currency; what needs to be studied is a series of items with varying degrees of market acceptance, whose acceptance levels decrease from high to low until reaching those items that cannot serve as currency.

Everyone might consider that, functionally speaking, traditional food stamps and various vouchers under the conventional system, as well as the various points we encounter everywhere today, have, to some extent and within certain limits, played the role of currency. In other words, we all participate in this "currency creation process." Many quantitative studies indicate that only 5% of all currency supply can be explained by central bank actions, while the remaining 95% is attributed to commercial banks and other institutions.

The above brief review of several monetary theories aims to illustrate a point: the creation of currency is not mysterious. Once the veil of mystery is lifted, many issues regarding stablecoins and the "crypto circle" become clear.

4. The unavoidable issue of monetary sovereignty

There is a viewpoint that stablecoins are a form of supranational currency that infringes upon our monetary sovereignty. I do not agree with this view because: currency, as a social and economic phenomenon, is essentially a matter of national sovereignty, which is the fundamental attribute of currency. As long as the world is composed of sovereign states, the sovereign attribute of currency will not be eliminated, and there will be no "supranational currency." In recent years, there have been many new technological innovations in currency, but they cannot bypass this sovereignty. Everyone values the cross-border payment function of stablecoins; indeed, the efficiency of cross-border payments based on stablecoins has greatly improved. However, hidden behind cross-border payments is the issue of currency exchange between different currencies, which most studies gloss over. This also indicates that when it comes to cross-border payments, the issue of currency exchange is something that cannot be avoided. Simply put, no matter what currency the U.S. issues, it cannot be directly used to purchase Chinese products and services; it cannot bypass the exchange barrier; currency, as a matter of national sovereignty, is very clear in this regard. Fundamentally, a country's economic sovereignty mainly consists of two aspects: the power to tax and the power to issue currency. These two rights cannot be relinquished; losing either one would mean "the country will not survive."

Of course, it is worth noting that the primary function of stablecoins is payment and settlement, and payment and settlement are the basic functions of currency. In this sense, stablecoins do have an impact on the sovereign currency systems of various countries. The development of domestic payment systems like Alipay and WeChat Pay has previously impacted China's monetary policy. As mentioned earlier, the domestic industry and research community have not focused on the payment and settlement function, so for a long time, our monetary authorities only cared about and strictly managed two types of matters: first, the capital pool, because having a capital pool means being a commercial bank, which must be regulated as a bank; second, negotiable and continuously tradable notes, which, if they possess this characteristic, are defined as bonds and must also enter regulation. However, many people did not realize that Alipay and WeChat Pay, solely relying on their payment and settlement functions, have massively entered the currency field and significantly encroached upon the territory of the monetary sector. It can be said that a series of subsequent regulations and even the introduction of central bank digital currency were all responses to this situation.

Stablecoins are a new phenomenon, so our research on them must also open up another perspective, which is the issue of currency stratification.

Studying currency issues in a stratified manner is a tradition of Marxism. The second and third volumes of "Capital" devote a lot of space to studying the mixed circulation of metallic currency, commercial bills, and paper currency, discussing the relationship between clearinghouses and commercial bills, which are the "real commercial currency." These studies provide us with a paradigm for stratified research on currency. Currency has always been stratified; for example, the central bank's monetary supply statistics, arranged in order of M0, M1, M2, etc., are a stratified currency system based on liquidity differences.

The emergence of digital currency has made the forms of currency increasingly complex, and the "stratification" of currency has also become more complicated. This is one of the reasons why the financial community refers to finance as the "superstructure of finance." Among various stratified structures, the bottom layer consists of assets that have "no trading counterparties." This refers to assets whose value is determined outside the system, constituting the ultimate settlement means for all transactions, thus carrying no trading risk or default risk. For example, gold in the past, and now the dollar and renminbi, have their values determined independently, while other currencies are merely "notes" against them. Under the gold standard, the first layer consists of gold and silver, while the second layer consists of commercial bank-issued bills and other notes; each plays different roles. Under the central bank system, the central bank is the issuing bank, the government bank, and the bank of banks, thus monopolizing the issuance of bottom-layer currency. Essentially, the currency issued by the central bank does not require trading counterparties; the central bank's balance sheet certainly provides trading counterparties, but that is merely a formality. With the addition of Bitcoin and stablecoins, the stratification of currency will become even more complex. Currently, there is a tendency to classify gold, the dollar, and Bitcoin as the first layer of currency, with Bitcoin functioning similarly to gold as "digital gold." Other types, such as Bitcoin deposits and other digital currencies, occupy several layers above the "currency pyramid." In this context, stablecoins merely add another layer of items that can serve as payment means on the increasingly rich currency pyramid.

The theory of currency stratification is very important. Because, from this perspective, we can reasonably explain various financial innovation activities; regarding the issue of global debt expansion, we can also add a new analytical angle.

5. Cultivating a strong currency requires comprehensive advancement

General Secretary Xi Jinping has proposed the great goal of "building a strong financial nation" and has conducted a thorough analysis of the elements that constitute a strong financial nation. The elements of a strong financial nation include "six strengths," with "strong currency" being the first. This theoretical implication is profound because without a strong currency, one cannot claim to have a strong financial nation. The U.S. has gone to great lengths to maintain the dollar through the stablecoin bill, making the dollar "stronger."

In China, cultivating a strong currency requires comprehensive advancement along two lines.

On the one hand, since any form of currency cannot bypass the issue of monetary sovereignty, firmly promoting the internationalization of the renminbi remains the core task of cultivating a strong currency (the renminbi). In this sense, all our past efforts, 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 recognized that the trend of the integrated development of stablecoins, cryptocurrencies, and traditional financial systems is 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 promoting the development of decentralized finance (DeFi) and the digitization of assets (RWA). Although in previous years, some countries only supported central bank digital currency experiments while others focused on the innovative development of stablecoins and cryptocurrencies, the latest dynamics have mostly shifted toward supporting a model of joint development among the three. The EU, Japan, the UAE, Singapore, and Hong Kong are all examples of this.

For China, we also need to coordinate the relationship between traditional central bank currency and digital renminbi, as well as financial innovations initiated from the "private sector," such as Alipay and WeChat Pay. It should be noted that Alipay and WeChat Pay are both based on bank deposit accounts as underlying assets; from the perspective that deposits are the main body of currency, they share significant similarities with stablecoins. Therefore, as long as the institutional design is reasonable, there should be no problem in allowing these official and private payment mechanisms to develop in coordination.

Regarding further development paths, we can strive in both onshore and offshore directions. Onshore, it involves clarifying the relationship between digital renminbi, Alipay, WeChat Pay, and traditional payment systems. Furthermore, we could consider approving several state-owned banks to issue renminbi stablecoins. China has decided to establish a "Digital Renminbi International Operation Center" in Shanghai, and it is recommended to use this as a basis for experimenting with renminbi stablecoins. Offshore, the situation is relatively complex; due to the Hong Kong dollar's peg to the U.S. dollar, offshore stablecoins based on the Hong Kong dollar are essentially closer to U.S. dollar stablecoins. This situation has both disadvantages and advantages, and there is actually significant operational space. By properly utilizing this space, it may be possible to create a channel that connects U.S. dollar stablecoins with renminbi stablecoins, thereby making a new contribution to the internationalization of the renminbi.