China’s Ex-PBOC Chief Warns Stablecoins Could Spark Financial Instability

China’s former central bank governor Zhou Xiaochuan has issued a stern warning about the risks of stablecoins, even as Beijing considers greenlighting a yuan-pegged version.

Speaking at a closed-door seminar in July—notes from which were published Wednesday by the think tank CF40—Zhou argued that stablecoins could easily be misused for speculation, potentially leading to fraud and financial instability. Zhou, who led the People’s Bank of China (PBOC) from 2002 to 2018, urged regulators to carefully weigh the necessity and potential fallout of stablecoin adoption.

According to Zhou, China’s financial system may not need stablecoins at all. Existing payment networks—powered by QR codes, near-field communication (NFC), and tightly integrated with the banking system—already provide efficient and low-cost services. “There is very limited room for new entrants to reduce costs or capture profits,” Zhou noted, emphasizing that the rollout of China’s central bank digital currency has further strengthened domestic payment infrastructure.

Zhou also highlighted the dangers of excessive stablecoin issuance. Without strict oversight, issuers could mint tokens without sufficient reserves, while custodians might fail to conduct proper due diligence. Even fully backed stablecoins, he warned, could trigger a “multiplier effect,” amplifying risks across loans, mortgages, and transactions. In such a scenario, a bank run could surpass the actual reserves by several times. Current regulatory frameworks, he added, remain inadequate to address these systemic risks.

The remarks come as reports surface that China’s State Council is preparing to review a stablecoin development roadmap, a notable shift given the mainland’s longstanding crypto ban. The move may be driven by concerns over the U.S. push to promote dollar-backed stablecoins, reinforcing the dollar’s global dominance. Meanwhile, regional neighbors like Japan and South Korea are also pursuing government-supported stablecoin initiatives.

Still, Chinese regulators remain cautious. According to Bloomberg, authorities have recently instructed brokers to stop promoting stablecoins in research and public forums—signaling that while a yuan stablecoin is under review, Beijing is far from ready to embrace the trend without significant safeguards.