The deputy governor of the People’s Bank of China (PBoC) has warned that stablecoins pose a risk to the international financial system.
Apparently PBoC is “worried” that “so-called stablecoins, may bring risks and challenges to the international financial and payments system.”
Stablecoins are tokens that are usually pegged to fiat currencies by reserving real assets (such as cash) with a central issuer to back the total circulation of tokens.
Stablecoins are used to hedge against volatility in crypto, facilitating trading across exchanges. Common stablecoins are USD Coin (USDC) and Tether (USDT).
In February 2021, the New York Attorney General fined Tether $18.5 million partly for concerns that the coin did not reserve adequate cash for its circulation.
It is not immediately clear why China’s central bank may be “worried” about stablecoins in particular, but the statements shed more light into the institution’s position on crypto.
The bank has intensified crackdowns on cryptocurrencies in recent months. As a consequence, the market value for cryptocurrencies dropped form nearly $2 trillion to $900 billion between May and June 2021.
Fan Yifei also added that unpegged cryptocurrencies “have themselves become speculation tools” and pose a risk to ‘financial and social stability.’
The above statements altogether represent the first direct indication from the PBoC on its position on crypto,
Besides its recent crackdown on cryppto firms, a key part of China’s response is a CBDC, or digital yuan that is expected to launch early next year.
Since 2019 the country has been developing a digital currency payment system (DCEP) in collaboration with local banks, and fintech players, Ant Financial and Tencent.
A countrywide rollout of the digital Yuan is expected to take place in early 2022.
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