In a recent high-level economic forum, Chinese economist Li Yang delivered a compelling address on the evolving landscape of monetary policy, with a particular focus on the rising significance of stablecoins. As global financial systems undergo profound transformation driven by digital innovation, Li emphasized that stablecoin regulation is no longer a fringe topic—it's central to the future of money and finance.
Li Yang, a distinguished member of the Chinese Academy of Social Sciences and founding chairman of the National Institution for Finance and Development, spoke at the China Macroeconomic Forum (CMF) 2025 Mid-Year Conference hosted by Renmin University. His speech, titled "An Ever-Expanding Toolbox for China’s Monetary Policy," outlined how new technological and geopolitical realities are reshaping the foundations of modern finance.
The Shifting Landscape of Global Finance
According to Li Yang, three major forces are making monetary policymaking increasingly complex:
- Domestic economic headwinds—weak demand, low inflation, and fragile expectations continue to pressure growth, innovation, and income distribution.
- Geopolitical fragmentation—the so-called "once-in-a-century transformation" has stalled globalization, leading to a fragmented, multipolar world order affecting trade, economics, and financial systems.
- The rise of regulated stablecoins—digital currencies backed by real assets are now being formally recognized through legislation in key jurisdictions.
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This third factor, Li stressed, marks a turning point: stablecoins are no longer speculative instruments—they are entering the mainstream regulatory framework.
Stablecoin Regulation Goes Global
Recent legislative milestones underscore this shift:
- The European Union’s MiCA (Markets in Crypto-Assets Regulation) took effect on December 30, 2024, establishing comprehensive rules for e-money tokens (e.g., euro-backed stablecoins), asset-referenced tokens, and other crypto assets.
- In the U.S., the Senate passed the GENIUS Act (Guidance and Establishment of National Innovation in United States Stablecoins Act), creating the country’s first federal framework for stablecoin oversight. The Trump administration has pushed for swift implementation before August.
- On May 21, Hong Kong enacted its Stablecoin Ordinance, offering the world’s first clear and complete regulatory blueprint for stablecoin issuance. The law comes into force on August 1, 2025.
What sets stablecoins apart from other cryptocurrencies like Bitcoin or Ethereum is their regulatory legitimacy. While many digital assets remain in legal gray zones, stablecoins—due to their pegged value and potential use in payments—are now being formally integrated into national financial infrastructures.
“Among all virtual currencies, only stablecoins have entered the legislative process. This demands our serious attention,” said Li Yang.
Why Stablecoins Matter: A New Monetary Paradigm
Stablecoins operate on fundamentally different principles than traditional fiat money. Built on blockchain and distributed ledger technology (DLT), they enable “payment equals settlement”—eliminating intermediaries and settlement delays. This innovation drastically shortens cross-border payment chains and increases efficiency.
Moreover, features like programmable smart contracts and decentralized finance (DeFi) integrations open new frontiers for automated financial services. However, these same traits pose significant challenges to financial stability, consumer protection, and regulatory oversight.
Li warned that stablecoins challenge not just existing financial institutions but also monetary theory itself. As they gain traction, central banks must reconsider their roles in liquidity provision, monetary transmission, and financial supervision.
Adapting Monetary Policy for a Digital Age
With M2 growth outpacing M1 and weak confidence among households and firms, China faces a broken monetary transmission mechanism. Li Yang believes that low interest rates may become the new normal, requiring structural reforms across the financial sector.
He proposed six strategic responses:
1. Financial Intermediary Transformation
Banks must evolve beyond traditional lending. Commercial banks should expand into asset management, financial services, and integrated operations. Non-bank institutions must deepen capital market participation to diversify funding sources.
2. Prioritize Financial Stability
Monetary policy should increasingly focus on maintaining financial stability, shifting from pure inflation targeting to liquidity management. Central banks need to act not only as lenders of last resort but also as market makers of last resort, especially during digital liquidity crunches.
3. Room for Reserve Requirement Cuts
Despite global trends toward zero reserve ratios, China still has room to lower its reserve requirement ratio (RRR). This flexibility remains a valuable tool in managing liquidity and stimulating credit flow.
4. Monitor Asset Price Stability
Global central banks now track both consumer prices and asset valuations. China should follow suit by institutionalizing mechanisms to monitor and respond to bubbles in real estate, equities, and digital assets.
5. Strengthen Global Financial Governance
The international monetary system is moving toward a multi-currency balance—where RMB, USD, EUR, and others coexist competitively. China should champion multilateralism, diversify cross-border payment channels (e.g., CIPS), and advocate for fairer global financial rules.
6. Embrace Digital Currency Innovation
China’s approach stands in contrast to some Western models: while the U.S. may prioritize private-sector stablecoins over central bank digital currency (CBDC), China is advancing the digital yuan while regulating private cryptocurrencies tightly.
“Trump once said he’d make cryptocurrency a national asset but wouldn’t pursue a CBDC,” Li noted. “Our path is opposite—we promote central bank digital currency but do not endorse private cryptocurrencies.”
This strategic clarity positions China to lead in digital finance without compromising control over monetary sovereignty.
Bridging Innovation and Regulation
Li highlighted growing concerns about fragmented global regulation:
- Oversight of fast-growing crypto markets remains inconsistent.
- Climate-related financial risks lack standardized frameworks.
- AI applications in finance suffer from regulatory gaps.
- Political influence often distorts regulatory direction.
To address these issues, international coordination is essential. Harmonized standards can prevent regulatory arbitrage and enhance systemic resilience.
China is already acting: the recent decision to establish a Digital RMB International Operations Center in Shanghai signals a major step toward globalizing its digital currency. This hub will support cross-border transactions, financial innovation, and international collaboration.
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Frequently Asked Questions
Q: What distinguishes stablecoins from other cryptocurrencies?
A: Unlike volatile assets like Bitcoin, stablecoins are pegged to stable reserves such as fiat currencies or commodities. This makes them suitable for payments and savings rather than speculation.
Q: Why are governments regulating stablecoins now?
A: Because of their potential to disrupt traditional banking and payment systems, especially in cross-border transactions. Regulatory frameworks aim to ensure stability, transparency, and anti-money laundering compliance.
Q: Is the digital yuan a type of stablecoin?
A: No. The digital yuan (e-CNY) is a central bank digital currency (CBDC), issued and backed by the People’s Bank of China. It’s legal tender. Stablecoins are typically issued by private entities and pegged to external assets.
Q: How do stablecoins affect monetary policy?
A: If widely adopted, they could bypass domestic banking systems, weakening central banks’ control over money supply and interest rates—especially in emerging markets.
Q: Can stablecoins replace traditional money?
A: Not fully in the near term. While they offer efficiency gains, they lack universal acceptance and face regulatory scrutiny. However, they may become dominant in niche areas like remittances or DeFi.
Q: What role does blockchain play in stablecoin functionality?
A: Blockchain enables transparency, security, and instant settlement. Smart contracts automate issuance and redemption processes, reducing reliance on intermediaries.
The Road Ahead
As digital currencies accelerate change, Li Yang reaffirms that China’s policy toolkit is expanding—not just technologically but strategically. From RRR adjustments to digital yuan deployment, the nation is preparing for a future where finance is faster, more inclusive, and more complex.
The message is clear: digital transformation cannot be ignored. Whether through public CBDCs or regulated private stablecoins, the future of money is being rewritten—and China intends to shape that narrative.
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