Author: Charlie Liu
While Wall Street and Silicon Valley were enjoying the warm atmosphere of the Thanksgiving long weekend, perhaps the last major news of the year regarding stablecoins came from Beijing across the ocean.
Last Friday, the People's Bank of China, together with 13 national ministries, convened a major meeting of the working coordination mechanism to crack down on speculation in virtual currency trading. The core message of the subsequent media release was very clear: virtual currency-related business activities are illegal financial activities, and stablecoins are explicitly defined as a type of virtual currency, which cannot be used as currency in the market.
For readers who have been following the mainland market, this argument is all too familiar: the policy documents of 2021 remain valid; the red lines have not been loosened, and have even been drawn more clearly.
Bitcoin, various worthless cryptocurrencies, and especially the stablecoins that have been so popular this year, are all categorized as "illegal financial activities" and remain a key area for financial security to guard against. If your life and work are primarily in mainland China, the conclusion is very simple: just stay away. However, for those involved in overseas business or whose work is primarily overseas, it's worth considering a step further. This year, the US Congress passed the GENIUS Act, a federal stablecoin bill, bringing "payment stablecoins" into a unified national regulatory framework. In Hong Kong, the Stablecoin Ordinance officially came into effect on August 1st, and applications for licenses for fiat-pegged stablecoins have begun to be accepted. In these two financial centers, stablecoins are positioned as "financial infrastructure conditionally included in compliant payment systems," rather than simply being treated as "crypto toys." The same type of tool is a "target of severe crackdown" on the mainland, but is "key to regulation and legitimization" in the globally open financial markets. Given this contrast, the seemingly insignificant statement in the central bank's press release—"closely monitoring and dynamically assessing the development of overseas stablecoins"—is worth careful consideration. Considering the complex global political and economic situation we are currently in, and the disruptive wave of technology and finance brought about by AI and crypto, we need to consider: at a stage where stablecoins are rewriting the global payment landscape and digital dollars have already infiltrated the financial systems and daily economic lives of many countries, what kind of monetary boundary is China drawing? A Well-Deliberated Red Line From a macro and regulatory perspective, the mainland financial market needs this red line. Over the past decade, we have suffered too many losses regarding the concept of "financial innovation." Shadow banking, P2P lending, student loans, pseudo-internet finance asset management, financialization of education and training… each story begins captivatingly: inclusive finance, technological empowerment, and improved efficiency. However, the endings often contradict these promises: systemic risks, localized social events, and a long period of irreparable damage to trust. In this context, whenever something simultaneously meets several criteria—high volatility, high leverage, low entry barriers, and difficulty in complete technological penetration—the regulator's instinct is always to tighten controls first. Virtual currencies happen to fit all these criteria. From defining Bitcoin as a "virtual commodity" in 2013, to halting ICOs and financial institutions' involvement in 2017, and then to the joint document issued by ten departments in 2021 completely banning trading and mining, this trend has consistently tightened. This meeting added insult to injury by explicitly including stablecoins within the category of virtual currencies, and specifically naming them. Why include stablecoins? This year's global stablecoin craze has highlighted two core characteristics. First, stablecoins are more "like money," making them more sensitive. Ordinary people naturally feel distanced from Bitcoin due to its high volatility and complex technical barriers. However, stablecoins like USDT and USDC, touted as "1:1 on-chain USD," are easily equated with currency. But the problem is that their essence is not currency, but rather a form of currency circulation/representation. Moreover, since they can seamlessly connect with bank accounts, wealth management products, and cross-border payment systems, the speed and scope of the impact on the real financial system from issues like reserve fraud, bank runs, or platform collapses far exceeds that of a purely speculative asset. Second, stablecoins inherently possess a "cross-border" attribute. Technically, it's a string of digital symbols that can be transferred freely between global nodes. If this is allowed to continue unchecked, especially given the unprecedented complexity and pressure on the onshore financial system today—real estate deleveraging, local government debt, shadow banking, and the platform economy—plus an asset class of considerable size whose price fluctuates wildly with external sentiment and can circumvent some traditional controls, the system's complexity will increase dramatically. Under these constraints, reiterating that "policy documents remain valid" and clarifying the definition of stablecoins in mainland China, categorizing them as "illegal financial activities," is essentially easing the burden on this already difficult macroeconomic game. From this perspective, this red line in mainland China is not a spur-of-the-moment decision, but a realistic choice to reduce the probability of chaos spiraling out of control. The problem is that the outside world won't stop just because we stop. Looking at the mainstream representatives of the financial and technological axis in Europe and America—Visa, JPMorgan, and SWIFT—the restructuring of clearing and payment networks, and even the banking and investment systems, by stablecoins over the past year indicates that stablecoins and tokenization will become the new foundation of the global financial system. In the United States, the core of the GENIUS Act is a balance reminiscent of common law: it acknowledges that stablecoins have grown to the point where they cannot disappear, yet it doesn't want them to continue to grow unchecked in a regulatory vacuum. Therefore, it simply uses a clear framework to incorporate "payment stablecoins." Who can issue them, how much can be issued, what the underlying assets must be, how to audit them, and how to disclose them are all written into the law. From that moment on, the concept of USD stablecoins officially evolved from "gray innovation" to "new infrastructure running on a compliant track." For banks, payment institutions, and technology platforms, stablecoins are no longer just toys for crypto-native users, but a payment tool that can be compliantly integrated into their systems. Even more interestingly, emerging markets have provided stablecoins with a fertile ground that no one anticipated. In countries like Argentina, Turkey, Venezuela, and Nigeria—countries with high inflation, persistent currency pressure, and frequent foreign exchange controls—many ordinary people simply don't have time to discuss the logic behind cryptocurrency prices. They face a different reality: how to preserve purchasing power after receiving their wages. For these people, opening an "on-chain USD account" on their mobile phones is the lowest-threshold, most cost-effective option, and less restricted by local banking systems. In labor-exporting countries like the Philippines, and in countries with large remote work populations like Argentina, Brazil, Nigeria, and Romania, stablecoins are increasingly appearing in cross-border remittance channels. Overseas workers use USDT to send money back home, which is then processed in the fiat currency world by local licensed institutions, or directly held in linked wallets on offshore exchanges—resettlement costs and arrival speeds are often more favorable than traditional channels. Piecing these pieces together, you'll find an unavoidable reality: based on the simple yet essential functions of payment and value storage, stablecoins have become the "de facto digital dollar infrastructure" in many countries. From China's perspective, what's truly important isn't "how many people are using it to speculate and get rich," but rather: Now that the digital dollar has penetrated the capillaries of overseas markets through the internet, how will the RMB secure its market share and mindshare within the same organic ecosystem? The Profound Meaning of "Dynamically Evaluating Overseas Stablecoins" Let's revisit the phrase "closely track and dynamically evaluate the development of overseas stablecoins." There are actually two core points here: The first is "overseas." The second is "evaluation." The word "overseas" clearly defines the spatial boundary: it's not allowed within the country. Virtual currency-related businesses are illegal financial activities, and stablecoins are no exception; they lack legal status as currency and cannot be circulated or used in the market. The meaning of this statement for related industries in mainland China is very simple and direct: don't have any illusions about operating within the red line. "Evaluation" carries another layer of meaning. This indirectly acknowledges one thing: the overseas stablecoin infrastructure has already taken shape, and it's relevant to our interests—whether it's Hong Kong, the Belt and Road Initiative countries, or more broadly, Asia, Africa, and Latin America. Simply and arbitrarily adopting a "don't look, don't listen, don't touch" approach is irresponsible towards the future of this major power. Hong Kong serves as a direct window. After the Stablecoin Ordinance came into effect, the issuance of fiat-pegged stablecoins was incorporated into the Hong Kong Monetary Authority's licensing system. Who can issue them, how they can issue them, and how they will be subject to prudential supervision after issuance are all clearly defined. From the central government's perspective, this is practically a "Xiaogang Village" forty years later: you can see whether the compliance framework can prevent most risks, how banks, payment institutions, and stablecoin issuers will negotiate, whether users can accept the user experience, and whether the connection with Wall Street and London can withstand external risks. Looking further outward, nodes along the Belt and Road Initiative, such as the Astana International Financial Centre in Kazakhstan, also serve as our stablecoin testing grounds. Can offshore RMB-denominated stablecoins, used in trade settlements between local and Chinese companies, effectively reduce exchange rate fluctuations and cross-border costs? Or, as I envisioned in a previous article, could their synergy with the export of electricity and AI computing power create a new closed loop for the circulation of offshore RMB stablecoins? These questions cannot be answered by mere simulations in a conference room; we must test them out in the open. Just as the reform and opening up policy initially involved pilot programs in Shenzhen, Pudong, and a few special economic zones before wider implementation, today we are testing "regulated digital RMB-related tools, offshore RMB stablecoins, and their interaction with USD stablecoins" in Hong Kong and financial centers in some friendly countries before considering further implementation. Therefore, I prefer to understand it as a dual-track arrangement: On one hand, there is a clear stance on domestic affairs—this line will not waver because of external commotion; on the other hand, there is a calm assessment of overseas affairs—the digital dollar is already on its way, and the RMB cannot afford to lose the future currency war. All we can do is, without crossing our own bottom line, carefully study and experiment, feeling our way across a new river. Conclusion: Resolve within the red line, courage overseas. Since the beginning of this year, in conversations with many overseas teams, financial institutions, and overseas investors, everyone has surprisingly reached a consensus on one point: the mainstreaming of stablecoins symbolizes that we are no longer just adding another currency, but have quietly become a new layer of global financial foundation. For the United States, it represents the on-chaining of the dollar and even the on-chaining of everything, a further extension of the dollar system. For many emerging market countries, it serves as a tool for citizens to hedge against local currency risks and address shortcomings in their local financial infrastructure. For China, however, it presents an unavoidable choice—we cannot simply liberalize domestically, but a prolonged absence overseas will also incur costs. From the perspective of someone involved in macroeconomics, international expansion, and fintech, I understand and respect the mainland's choice to maintain this red line at the current stage. Behind this line lies an economy absorbing excess capacity, dealing with local government debt, facing the aftereffects of the real estate boom, and navigating a demographic turning point, making it highly sensitive to systemic risks. However, if we lack the courage and imagination to "stand on the same playing field as the digital dollar" in overseas compliance scenarios, the impact could be more profound than any policy tightening. Therefore, this presents policymakers in the new era with a "dual mandate": Within the red lines, maintain stability; outside the blue ocean, secure the right to choose.
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