PBOC governor warns on stablecoin risks as global anxiety builds

[BEIJING] People’s Bank of China (PBOC) governor Pan Gongsheng stiffened warnings on the risks around stablecoins, as the digital tokens usually pegged to fiat currencies stir more angst among officials around the world.

Pan said during a forum in Beijing on Monday (Oct 27) that China would further develop its state-backed digital currency. But he made clear the unease felt by the PBOC over stablecoins, pointing to “prevailing views” he heard at the International Monetary Fund and World Bank meetings in Washington earlier this month from other central bankers and finance ministers.

“As a financial activity, stablecoins currently fail to effectively meet basic requirements for customer identification and anti-money laundering, exacerbate loopholes in global financial regulation, such as money laundering, illegal cross-border fund transfers, and terrorist financing,” he said.

The rapid growth of stablecoins and their increasing links to mainstream finance have prompted a succession of warnings from regulators, watchdogs and institutions such as the Bank for International Settlements.

A more cautious approach towards cryptocurrencies has so far prevailed in China, after earlier signs that Beijing may consider using stablecoins for cross-border payments. In the wake of US moves this year to establish a regulatory basis for US dollar-based stablecoins, some experts in China have argued for an embrace of a digital currency pegged to the yuan.

But Pan cautioned that stablecoins are in the early stages of development and said prevailing views suggest the digital currencies have “fostered a strong atmosphere of market speculation”. They are “increasing the fragility of the global financial system and impacting the monetary sovereignty of some less-developed economies”, he said.

Earlier in the year, China told local brokers to stop publishing research or holding seminars to promote stablecoins, seeking to rein in the asset class to avoid instability, Bloomberg reported.

Pan said that the PBOC would look to “optimise” the status of China’s own state-backed digital currency, the e-CNY, within the “monetary hierarchy” and support more commercial banks to become its operators.

The governor’s speech centred around plans to bolster the PBOC’s “macro-prudential mandate”, a remit to maintain overall financial stability, over the next five-year planning period starting from 2026.

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The central bank will aim to better control financial risks stemming from the real economy, markets, key institutions as well as changes overseas, according to Pan.

The PBOC has stepped up its support to the stock market over the past year, introducing two structural monetary policies to boost liquidity. It also helped a unit of China’s sovereign wealth fund to act as a “quasi-stability” mechanism that helped counter big market swings.

The PBOC will continue to optimise its toolbox for safeguarding financial stability, Pan said. The central bank is additionally exploring an arrangement to provide liquidity to non-bank financial institutions in certain scenarios, he said.

Pan also said that the central bank is planning to introduce a new policy for individuals to repair their personal credit records by early next year.

“In recent years, due to force majeure events such as the Covid-19 pandemic, some individuals have defaulted on their debts,” he said. “Although they have subsequently repaid the debts in full, the resulting credit records continue to impact their financial lives.” BLOOMBERG