China’s Ex-Central Bank Governor Sounds Alarm on Stablecoin Stability Risks

Stablecoins face mounting skepticism from top financial regulators—just as they're hitting record adoption.

Why the worry?

Former PBOC chief Zhou Xiaochuan openly questions whether stablecoins can truly deliver on their promise of price steadiness. He highlights vulnerabilities in reserve backing and redemption mechanisms—classic weak spots that could trigger contagion during market stress.

Real-world reserves often fall short—imagine a dollar-pegged token backed by commercial paper and hopeful prayers. When investors rush exits, those reserves evaporate faster than a meme coin’s hype.

Regulators globally scramble to respond. Some push for stricter collateral rules; others eye outright bans. Meanwhile, stablecoin issuers lobby hard—nothing says 'trust us' like spending millions to avoid oversight.

Market impact? Short-term FUD, long-term pressure for transparency. Institutions now demand proof of reserves—audited, real-time, and verifiable. Retail traders? They keep stacking stablecoins anyway, chasing yield until the next 'stable' collapse makes headlines.

Stablecoins won’t disappear—but the wild west days might. As Zhou warns, unbacked promises eventually crumble. In crypto, even 'stable' carries risk—especially when traditional finance veterans start doubting the math.

TLDR

• Zhou Xiaochuan warns stablecoins may threaten China’s financial stability.

• The global supply of stablecoins has doubled to $270 billion in just seven months.

• Stablecoins could disrupt China’s capital controls and financial system.

• Global stablecoin market could hit $1.8 trillion by 2028 as adoption grows.

Zhou Xiaochuan, former governor of the People’s Bank of China (PBOC), has voiced concerns about the growing global stablecoin market. Speaking at a closed-door meeting in Beijing, Zhou warned that stablecoins could destabilize China’s financial system. His comments come as China is considering the adoption of yuan-backed stablecoins to compete with the U.S. dollar’s dominance.

Zhou’s caution contrasts with other policymakers who advocate for China to follow the U.S. in embracing stablecoins. He argued that the supposed advantages of stablecoins, such as reducing transaction costs and enabling faster cross-border payments, are exaggerated. According to Zhou, China’s existing retail payment systems, including Alipay, WeChat Pay, and the digital yuan, are already highly efficient and leave little room for improvement from stablecoins.

Rise of Stablecoins and Market Growth

The global supply of stablecoins has surged dramatically over the past few months. In just seven months, the total supply has doubled from $130 billion in January 2024 to approximately $270 billion. Experts predict that the market could reach a staggering $1.8 trillion by 2028 if current growth rates continue.

Stablecoins, particularly those backed by the U.S. dollar, are gaining significant traction due to their integration into decentralized finance (DeFi) platforms.

Supporters argue that stablecoins could enhance the efficiency of traditional payment systems and play a key role in the future of cross-border payments. However, critics like Zhou caution that the unregulated nature of stablecoins could lead to market manipulation and fraud.

China Resistance to Stablecoin Adoption

China’s resistance to stablecoins stems from concerns about its ability to maintain capital controls. Zhou emphasized that the widespread use of stablecoins WOULD weaken China’s control over its financial markets, a key pillar of the country’s economic strategy. Stablecoins, by design, could bypass traditional banking systems and limit the effectiveness of capital controls.

Zhou also highlighted the risk of stablecoins becoming speculative assets. He argued that stablecoins could become vulnerable to manipulation and could be used as tools for financial speculation, further destabilizing markets. While global regulatory frameworks in places like the U.S., Hong Kong, and Singapore have made some progress, Zhou believes that they still lack the protections needed to ensure stablecoin stability and security.