Li Yang talks again about stablecoins

On June 21, at the 2025 Mid-Term Forum of the China Macroeconomic Forum (CMF) held at Renmin University of China (the 69th session), Li Yang, a member of the Chinese Academy of Social Sciences and chairman of the National Finance and Development Laboratory, delivered a speech titled "Continuously Enriching China's Monetary Policy Toolbox."

Li Yang stated that, from three aspects, the current environment for formulating and implementing monetary policy is becoming increasingly complex.

First of all, there is insufficient domestic effective demand, prices are sluggish, and expectations are weak. Promoting economic growth, advancing technological progress, and improving income distribution still face pressure in various areas.

Secondly, the "once-in-a-century great changes" in the international arena are accelerating, the process of globalization has stalled, geopolitical tensions are rising, and the world pattern has entered a phase of fragmentation, multipolarity, and bilateralism, affecting international economy, international trade, and international finance.

Moreover, the stablecoin has gone through legislative processes in Europe, America, and Hong Kong, making the challenges posed by digital technology to existing currency, finance, monetary policy, and even monetary theory more apparent.

According to public information, the EU's Markets in Crypto-Assets Regulation (MiCA) will officially take effect on December 30, 2024, directly regulating electronic money tokens (such as euro stablecoins), asset-referenced tokens (anchored to a basket of assets, including commodities, crypto assets, etc.), as well as other crypto assets. Recently, the U.S. Senate passed the Guidance and Establishment of a National Innovation Act for Stablecoins (the GENIUS Act), which establishes the first federal regulatory framework for stablecoins, pushed by the Trump administration to be implemented before August. In addition, on May 21, the Legislative Council of the Hong Kong Special Administrative Region also passed the Stablecoin Regulation Bill, providing the first complete and clear regulatory framework for stablecoin issuance, which will officially take effect on August 1.

Li Yang specifically pointed out that although there are various types of virtual coins existing, only stablecoins have entered the legislative process, which requires high attention. Stablecoins have a clearly different theoretical basis and operational characteristics compared to traditional currencies, and will pose new challenges to the traditional monetary financial system.

The current monetary policy tone is tending towards easing, with an increase in money supply. However, the growth rate of M2 is still higher than that of M1, indicating that the transmission mechanism of monetary policy is still hindered by insufficient confidence among residents and enterprises. Li Yang analyzed that the downward trend in interest rates may become the norm for China's financial operations in the coming period, and responding to the challenges of low interest rates will also become one of the main tasks of China's financial industry.

When discussing coping strategies, Li Yang provided several suggestions.

First, intermediary institutions such as banks must undergo transformation. Commercial banks should vigorously develop financial services, develop asset management businesses, strengthen asset trading operations, and implement comprehensive operations. Non-bank financial institutions must also transform, and the development of capital markets is crucial.

Second, the policy adjustment goals should focus more on financial stability, and monetary policy should gradually shift to a liquidity control center. In operation, the central bank's role should also shift from being the "lender of last resort" to having both "lender of last resort" and "market maker" functions.

Third, there is still room for a decrease in the reserve requirement ratio. Since the 1990s, the reserve requirement ratio has been regarded as an administrative regulatory method and has gradually been abandoned by market economies. Many countries have started to implement a "zero reserve ratio." The reduction of the reserve requirement ratio in our country is also the flexibility of China's monetary policy.

Fourth, incorporate asset price stability into the perspective of monetary policy. The current trend of global monetary policy is not only to focus on price stability but also on the stability of asset prices. China's monetary policy must keep pace with the times and explore institutional arrangements to maintain the stability of the capital market.

Fifth, actively participate in the reform of international monetary and financial governance mechanisms. The current international monetary system may continue to evolve towards a pattern of several sovereign currencies coexisting, competing, and balancing each other. China should actively promote the diversified development of cross-border payment systems, adhere to the path of reform and opening up, and multilateralism, and play a constructive role in contributing to the establishment of a more equitable, just, inclusive, and resilient global financial governance system.

Sixth, positively respond to the development of digital currency and stablecoins. Our country has already confirmed that emerging technologies such as blockchain and distributed ledger are promoting the vigorous development of central bank digital currency and stablecoins, achieving "payment equals settlement," fundamentally reshaping the traditional payment system, significantly shortening the cross-border payment chain, and simultaneously posing enormous challenges to financial regulation. Technologies such as smart contracts and decentralized finance will also continue to drive the evolution and development of cross-border payment systems.

"Before Trump took office for the second time, he stated that he wanted to turn digital currency into national wealth and clearly expressed that he would not pursue central bank digital currency. Our country's attitude towards this is completely opposite; we promote central bank digital currency but do not engage in digital currency." Li Yang stated that the current global trend is the prevalence of Bitcoin and stablecoins, and we must immediately respond to the question of 'what to do'.

There is insufficient global regulatory coordination for the rapidly expanding cryptocurrency market and climate risk-related regulatory frameworks, with regulatory orientations swinging significantly and being overly driven by politics; the application of artificial intelligence in the financial sector lacks unified regulatory standards, and there is a need for enhanced collaborative regulation globally to address regulatory shortfalls.

Recently, China has decided to establish an international operation center for the digital yuan in Shanghai, promoting the internationalization of the digital yuan and the development of financial market business, serving digital financial innovation. Li Yang pointed out that regarding how to respond to the issues brought by stablecoins and other digital currencies, Chinese regulatory authorities have already made arrangements. China will not lag behind, and our policy toolbox will continue to be enriched to ensure the stability and long-term growth of China's macroeconomy.