A Brief Discussion on Stablecoins and Central Bank Digital Currency

Since the beginning of this year, stablecoins have become the absolute hot topic in the financial industry!

On July 19, U.S. President Trump officially signed the "National Stablecoin Innovation and Regulatory Act (GENIUS Act)" (hereinafter referred to as the "Genius Act"), marking the first formal establishment of a regulatory framework for stablecoins in the United States.

On July 29, the Hong Kong Monetary Authority released a series of documents regarding the regulatory framework for stablecoin issuers that will be implemented starting August 1, 2025, providing specific guidelines for the regulation of stablecoin issuers.

Recently, discussions surrounding the regulatory framework for stablecoins and their impact on the international monetary system have intensified. At the same time, driven by policies and current trends, the commercialization process of global stablecoins has significantly accelerated.

So, what exactly is a stablecoin? How is it different from central bank digital currency (CBDC)? How should it develop in the country? This article will briefly discuss these issues.

Differences and Similarities Between Fiat Stablecoins and Central Bank Digital Currencies

A stablecoin is a type of cryptocurrency that maintains price stability by pegging to external assets (such as fiat currency, gold, or a basket of assets), aimed at solving the payment challenges of highly volatile cryptocurrencies like Bitcoin.

According to the different anchor objects, stablecoins can be divided into several different types, including fiat-collateralized, crypto-collateralized, algorithmic stablecoins, and so on. The "fiat stablecoin" discussed in this article, as a subclass of stablecoins, specifically refers to the type that is pegged 1:1 to fiat currencies (such as the US dollar, Hong Kong dollar).

So, as a digital extension of fiat currency, what are the similarities and differences between fiat stablecoins and central bank digital currencies?

Fiat stablecoins and central bank digital currencies (CBDCs) are two core forms of digital currency that share technical similarities, but there are significant differences in terms of issuing entities, credit backing, and application scenarios.

First, the issuers and credit endorsements of the two are different. Central bank digital currency is issued by the central bank and is 100% backed by national credit, with unlimited legal tender status (for example, digital RMB is equivalent to cash); while stablecoins are issued by private institutions (such as Tether, Circle) or decentralized protocols, with credit relying on collateral assets or algorithmic mechanisms. Fiat stablecoins are pegged to fiat currency at a 1:1 ratio and need to maintain stability through reserve assets.

Secondly, the degree of centralization and regulatory systems of the two are different. Central bank digital currency is issued by the central bank; for example, the digital yuan adopts a fully centralized two-tier operating system, strictly regulated by the central bank, and supports controllable anonymity. On the other hand, fiat stablecoins, although more decentralized, rely on public chain consensus mechanisms (such as Ethereum), support anonymous transactions, and although multiple regions are establishing corresponding regulatory frameworks, they are not yet complete.

Finally, the stability and application scenarios of the two are different. Central bank digital currencies mainly focus on domestic retail payments (such as consumer spending and government payments) and strengthen the transmission of monetary policy (such as targeted subsidies); stablecoins currently mainly focus on cross-border payments, the DeFi ecosystem, and cryptocurrency trading.

Nevertheless, stablecoins and central bank digital currencies share some similarities in terms of digital forms and efficiency improvements, payment mediums, and technical means. For example, both exist in a digital form, are based on blockchain or distributed ledger technology (DLT), support peer-to-peer transactions and automated settlements, and can significantly enhance payment efficiency. Additionally, both possess transaction medium attributes and support programmability, which can address the shortcomings of traditional payment systems.

The Rise of Stablecoins and the Dormancy of Central Bank Digital Currencies

Since stablecoins became the focus of public opinion, their popularity has remained high.

The United States has incorporated stablecoins into regulation through the "Genius Act", while another key cryptocurrency bill, the "Anti-Central Bank Digital Currency Monitoring National Act", was also passed through the House of Representatives alongside the "Genius Act". This act aims to protect the financial privacy of Americans and prohibits the Federal Reserve from issuing retail CBDCs without explicit authorization from Congress.

From another perspective, the United States' improvement of the stablecoin regulatory framework essentially limits the central bank's issuance of digital currency, encourages and regulates private issuance of digital currency, thereby establishing a cryptocurrency strategy that promotes the coordination between private stablecoins and national digital asset reserves. This indicates its adoption of a market-oriented approach to promote digital assets and aims to prevent the potential expansion of the central bank's control over monetary policy. In other words, the US dollar stablecoin is still an on-chain extension of the dollar hegemony, and the establishment of the regulatory framework is indeed aimed at further consolidating the dollar's hegemonic position.

Recently, foreign media reported that due to growing skepticism about the benefits of central bank digital currencies, officials at the Bank of England are considering whether to suspend plans to create a digital pound. Bank of England Governor Andrew Bailey has recently voiced his concerns and has focused on encouraging banks to promote tokenized deposits. Does this shift reflect a waning global interest in creating state-backed digital currencies with the emergence of stablecoins and other payment innovations?

The Bank for International Settlements (BIS) 2024 survey shows that 134 countries worldwide are exploring central bank digital currencies (CBDC), with 100 entering experimental or pilot stages, and 13 G20 countries in pilot programs. Global interest in CBDCs continues to grow, with the proportion of central banks conducting CBDC explorations rising to 94%, and it is expected that up to 15 CBDCs will be issued by 2030.

The International Monetary Fund (IMF) also pointed out that more than two-thirds of central banks plan to launch retail CBDCs in the short term.

The answer is obvious. From the perspective of mobile payment networks, the rise of stablecoins will not diminish the interest of countries around the world in exploring central bank digital currencies; the two are simply different paths of exploration for digital currencies.

In early July this year, the BIS stated in its annual economic report that while the future role of stablecoins remains unclear, their poor performance in the three key tests of "money" (singularity, resilience, and completeness) suggests that they can at best play a supplementary role. The BIS's concerns about the monetary attributes exhibited by stablecoins can be seen as a cooling of the enthusiasm surrounding stablecoins.

Whether it is the development of central bank digital currencies or stablecoins, regulatory challenges are real. Central bank digital currencies need to meet regulatory requirements such as anti-money laundering (AML) and counter-terrorist financing (CFT) while protecting user privacy. Stablecoins, on the other hand, may give rise to money laundering and cross-border crime, creating difficulties for monetary authorities in managing exchange rates and capital flows, and posing practical challenges for regulating decentralized and cross-border operations.

Should China Develop a "Stablecoin"?

With the ongoing fermentation of opinions on stablecoins, discussions about whether the country should develop "stablecoins" are increasing. In this regard, many industry insiders believe that consideration should be given to piloting offshore RMB stablecoins first.

The chief economist of JD Group and vice president Shen Jian Guang once stated that Hong Kong can be a global leader in the development of offshore RMB, which can then be promoted worldwide, helping the RMB secure a place in the next generation of international currency competition. Zhu Taihui, senior research director of JD Group, also expressed the same view in his writings, stating that developing offshore RMB stablecoins is an important way to accelerate the internationalization of the RMB and serves as a crucial means to alleviate the uncertainty surrounding the development of the 'digital currency bridge', without affecting the currency policy regulation and cross-border capital management in the mainland. The development pace should adopt a gradual model, promoting from the Hong Kong region to the mainland free trade zones and free trade ports, thereby continuously strengthening the support for the internationalization of the RMB.

The Chairman of the Hong Kong International Finance Society, Professor and Deputy Dean Xiao Geng from the School of Public Policy at The Chinese University of Hong Kong (Shenzhen), stated at a salon that Hong Kong urgently needs to develop stablecoins to significantly reduce cross-border transaction costs and support the need for Hong Kong to develop digital finance. He believes that it is crucial for stablecoins to be pegged to the Renminbi, as this can address the instability of the dollar system while creating a relatively independent ecosystem that does not directly affect mainland monetary policy.

Li Yang, a member of the Chinese Academy of Social Sciences and chairman of the National Finance and Development Laboratory, stated in his speech that China should take proactive measures in the stablecoin field, promote the internationalization of the digital renminbi, and utilize Hong Kong to develop renminbi stablecoins to enhance the international status of the renminbi.

Previously, Yang Tao, the deputy director of the National Institute of Financial and Development Laboratory, stated in an article that in the short term, China's exploration of stablecoins should focus on the Renminbi stablecoin, aiming to quickly secure a place in the global fiat-collateralized stablecoin market. Its reserve management could correspond to high liquidity, low-risk assets such as Renminbi cash, bonds, or digital Renminbi.

From the perspective of mobile payment networks, Hong Kong's legislation does not exclude the Chinese yuan stablecoin, and offshore Chinese yuan stablecoin may become a possibility and assist in the internationalization of the yuan, but there is no direct relationship between the two. The "Chinese yuan stablecoin" is a direction that can be considered after Hong Kong issues licenses, but it should not become the focus and direction of discussions in mainland China.

The Mobile Payment Network believes that the mainland should continue to adhere to the pilot and promotion of "digital renminbi", and accelerate the application of multilateral central bank digital currency bridges and cross-border payment of digital renminbi.

Currently, the application scenarios of stablecoins mainly focus on cross-border trade, which overlaps with the application of "currency bridges" and the digital yuan in cross-border payments. Therefore, it is most appropriate for Hong Kong and the mainland to explore separately and form a certain complementary reference.

Maintain the mainland's leading position in the research and development of central bank digital currencies, while also preserving Hong Kong's first-mover advantage in the regulatory system and innovative development of stablecoins. Research the synergistic development of the digital yuan and stablecoins in terms of technology and connectivity. On one hand, accelerate the construction of the digital yuan transaction settlement system, and on the other hand, actively explore the development of the RMB stablecoin in the offshore system, allowing both to work together and progress on dual tracks.