The global financial landscape is undergoing a profound transformation, driven by rapid advancements in digital currencies—particularly stablecoins. At the 2025 China Macro Forum (CMF) Mid-Year Conference hosted by Renmin University, Li Yang, academician of the Chinese Academy of Social Sciences and founding chairman of the National Institute of Financial Development, delivered a keynote address titled “An Evolving Toolkit for China’s Monetary Policy.” His remarks shed light on how emerging technologies like stablecoins are reshaping traditional monetary systems and what this means for policymakers, financial institutions, and the broader economy.
The Changing Landscape of Monetary Policy
Li Yang emphasized that the environment for formulating and implementing monetary policy has become increasingly complex. He identified three key dimensions contributing to this complexity:
First, domestic economic challenges persist. Weak consumer demand, subdued price levels, and fragile expectations continue to hinder growth. Efforts to boost technological innovation and improve income distribution face structural headwinds.
Second, the geopolitical landscape is fragmenting. Globalization has stalled, replaced by a multipolar, bilateral world order marked by rising tensions and economic decoupling. This shift affects international trade, finance, and cross-border capital flows.
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Third—and most notably—stablecoins are gaining regulatory legitimacy across major economies. This marks a turning point where digital assets are no longer fringe experiments but formal components of financial infrastructure.
Global Regulatory Momentum for Stablecoins
Recent legislative milestones underscore the growing acceptance of stablecoins:
- The European Union’s MiCA (Markets in Crypto-Assets Regulation) took effect on December 30, 2024, establishing comprehensive rules for euro-linked stablecoins and other crypto assets.
- In the United States, the Senate passed the GENIUS Act (Guidance and Establishment of National Innovation in U.S. Stablecoins), creating the country's first federal framework for stablecoin regulation. The Trump administration pushed for its implementation before August 2025.
- On May 21, 2025, Hong Kong’s Legislative Council approved the Stablecoin Ordinance, providing a clear regulatory pathway for stablecoin issuers. The law will take effect on August 1, 2025.
What sets stablecoins apart from other cryptocurrencies is their entry into formal legal frameworks—a development Li Yang stressed as highly significant. Unlike speculative tokens such as Bitcoin, stablecoins are designed to maintain value parity with real-world assets, typically fiat currencies like the U.S. dollar or euro.
This regulatory recognition highlights a fundamental shift: digital money is no longer theoretical—it’s operational and legally sanctioned.
Why Stablecoins Matter: A Structural Challenge to Traditional Finance
Stablecoins operate on decentralized blockchain networks and rely on algorithmic or reserve-backed mechanisms to maintain price stability. Their core innovation lies in enabling fast, low-cost, borderless transactions—features that contrast sharply with traditional banking systems.
Li Yang pointed out that stablecoins have distinct theoretical foundations and operational dynamics, posing new challenges to:
- Central bank monetary control
- Payment system integrity
- Financial stability oversight
- Cross-border capital flow management
Moreover, they enable “payment as settlement”—a paradigm shift where transactions clear instantly without intermediaries. This reduces settlement risk and time but also disrupts existing clearinghouses and correspondent banking networks.
As these technologies mature, they could reshape the global financial architecture, particularly in cross-border payments where legacy systems remain slow and costly.
Adapting Monetary Policy for a Digital Era
Despite accommodative monetary policies and expanding money supply, China faces a persistent gap between M2 (broad money) and M1 (narrow money) growth—a sign of weak confidence among households and businesses. Liquidity isn’t translating into spending or investment.
Li Yang warned that low interest rates may become the new normal, making it imperative for China’s financial sector to adapt. He proposed six strategic responses:
1. Financial Intermediary Transformation
Banks must evolve beyond traditional lending. Commercial banks should expand into wealth management, asset trading, and integrated financial services. Non-bank institutions must strengthen capital market development to diversify funding channels.
2. Refocusing Policy Goals on Financial Stability
Monetary policy should place greater emphasis on liquidity management rather than just inflation targeting. Central banks need to assume dual roles: not only as “lender of last resort” but also as “market maker of last resort” during crises.
3. Room for Further Reserve Requirement Cuts
While many advanced economies have moved toward zero reserve ratios, China still maintains relatively high required reserve ratios. Further reductions can enhance monetary policy flexibility and support credit expansion.
4. Incorporating Asset Price Stability
Global trends show central banks increasingly monitoring equity, real estate, and bond markets. China should develop systematic frameworks to stabilize asset prices, preventing bubbles and abrupt corrections that threaten macroeconomic stability.
5. Engaging in Global Financial Governance Reform
The international monetary system is moving toward a multipolar structure featuring competing sovereign digital currencies. China must advocate for diversified cross-border payment systems, support multilateralism, and promote inclusive global financial reforms.
6. Proactively Addressing Digital Currencies
China has embraced blockchain and distributed ledger technology to advance its central bank digital currency (CBDC)—the digital yuan. However, Li Yang made a critical distinction: while the U.S. under Trump favored private-sector cryptocurrencies over CBDCs, China is pursuing the opposite path—promoting state-backed digital currency while maintaining tight control over private crypto initiatives.
“We promote central bank digital currency—but not cryptocurrency,” Li Yang stated, highlighting China’s cautious yet forward-looking stance.
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Toward Coordinated Global Regulation
Despite progress, regulatory fragmentation remains a concern. Li Yang noted that oversight of fast-growing crypto markets and climate-related financial risks suffers from:
- Inadequate international coordination
- Politically driven policy swings
- Lack of standardized rules for AI applications in finance
He called for stronger global regulatory cooperation to close gaps in supervision, especially concerning decentralized finance (DeFi), smart contracts, and algorithmic risk management.
China’s Strategic Response: The Digital Yuan International Hub
In a significant move, China announced the establishment of a Digital RMB International Operations Center in Shanghai. This hub will drive the international use of the digital yuan, support fintech innovation, and integrate digital currency into mainstream financial services.
This initiative signals that China is not passively reacting to stablecoin developments—it is actively shaping the future of digital money.
Frequently Asked Questions (FAQ)
Q: What are stablecoins?
A: Stablecoins are cryptocurrencies designed to maintain a stable value by being pegged to reserve assets like the U.S. dollar or euro. They combine blockchain efficiency with price stability.
Q: How do stablecoins differ from central bank digital currencies (CBDCs)?
A: Stablecoins are typically issued by private entities and operate on public blockchains; CBDCs are state-backed digital currencies issued by central banks using controlled or hybrid networks.
Q: Why is regulation important for stablecoins?
A: Regulation ensures transparency, protects users, prevents illicit finance, and maintains financial stability—especially as stablecoins grow in scale and systemic importance.
Q: Can stablecoins replace traditional money?
A: Not fully yet—but they are becoming integral to payment ecosystems, particularly in cross-border transactions and decentralized finance applications.
Q: Is China developing its own stablecoin?
A: No—China focuses on its CBDC (digital yuan) rather than private stablecoins. The government maintains strict controls over private crypto issuance.
Q: What role does blockchain play in modern finance?
A: Blockchain enables secure, transparent, and efficient transaction processing. It underpins innovations like smart contracts, DeFi, tokenized assets, and instant settlement systems.
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Conclusion: Building a Resilient, Forward-Looking Financial System
Li Yang’s insights underscore a pivotal moment in financial history. As stablecoins gain regulatory approval in Europe, the U.S., and Hong Kong, they are no longer speculative instruments but legitimate components of the global monetary system.
China’s response—through CBDC development, regulatory preparedness, and institutional innovation—reflects a commitment to staying ahead in the digital currency race. By enriching its policy toolkit and embracing technological change, China aims to ensure macroeconomic resilience in an era defined by digital transformation.
The future of money is being rewritten—one line of code at a time.