China's Central Bank Governor Pan Gongsheng warned about the risks of stablecoins and strongly promoted the CBDC "e-CNY".

The Governor of the People's Bank of China, Pan Gongsheng, issued a stronger warning about the risks of stablecoins at a forum in Beijing on Monday. He pointed out that stablecoins have fundamental flaws in customer identification KYC and AML, which exacerbate global financial regulatory gaps and may be used for illegal cross-border fund transfers and terrorism financing.

Pan Gongsheng further emphasized that stablecoins “foster a strong atmosphere of market speculation” and “increase the vulnerability of the global financial system, impacting the monetary sovereignty of some underdeveloped economies.” To address these challenges, the People's Bank of China (PBOC) plans to optimize the status of its state-supported CBDC—e-CNY—during the next five-year planning period and support more commercial banks to become its operators to strengthen the PBOC's macro-prudential regulatory functions.

The Governor of the People's Bank of China Issues a Stern Warning on Stablecoins

The Governor of the People's Bank of China, Pan Gongsheng, spoke at a forum in Beijing on Monday, intensifying warnings about the risks of stablecoins. He pointed out that these digital tokens, which are typically pegged to fiat currencies, are raising increasing concerns among regulators globally. Pan stated that he heard the “general views” of other central bank governors and finance ministers at the International Monetary Fund (IMF) and World Bank meetings held in Washington earlier this month, further solidifying the PBOC's concerns about stablecoins.

Core Risk Points: KYC/AML Vulnerabilities

Pan Gongsheng emphasized the fundamental flaws of stablecoins in regulatory compliance:

“As a financial activity, stablecoins have so far failed to effectively meet the basic requirements for customer identification and AML, exacerbating gaps in global financial regulation, such as Money Laundering, illegal cross-border funds transfer, and terrorist financing.”

This argument is highly consistent with the concerns of global regulatory bodies, including the Bank for International Settlements, regarding mainstream stablecoins such as USDT and USDC.

Macroeconomic Impact of Stablecoins: Speculation and Sovereign Shock

Despite previous signs indicating that Beijing might consider using stablecoins for cross-border payments, and some domestic experts calling for the launch of a renminbi CBDC to respond to the U.S. regulatory actions against dollar stablecoins, Pan Gongsheng's remarks set a more cautious tone for China's policy on cryptocurrencies.

Pan Gongsheng pointed out that stablecoins are still in the early stages of development, and the current prevailing view is that these digital currencies:

1. “Fostered a strong market speculation atmosphere”: Its rapid growth and increasingly close ties with mainstream finance have led to heightened speculative sentiment.
2. “Increased the vulnerability of the global financial system”: The volatility and opacity of stablecoins may pose systemic risks.
3. “Impacted the monetary sovereignty of some underdeveloped economies”: The prevalence of strong stablecoins may weaken the status of local fiat currencies.

Prior to this, according to Bloomberg, China has asked local brokerages to stop publishing research reports or holding seminars to promote stablecoins, in order to avoid potential instability brought by the asset class.

( PBOC's new five-year plan: optimize the position of CBDC e-CNY and strengthen macro prudential.

The core of Pan Gongsheng's speech revolves around the PBOC's plan to strengthen its “macro-prudential functions” in the next five-year planning period (starting from 2026). The macro-prudential functions aim to maintain overall financial stability.

To achieve this goal, the People's Bank of China will take the following key measures:

• Optimize e-CNY's status: The PBOC will seek to “optimize” the status of China's state-supported digital currency e-CNY in the “currency hierarchy.”
• Expand the range of operators: More commercial banks will be supported to become operators of e-CNY in order to promote its wider penetration and application.
• Preventing and controlling financial risks: The central bank will strive to better control financial risks originating from the real economy, markets, key financial institutions, and changes overseas.

In addition, Pan Gongsheng also revealed the exploration of other financial stability tools:

• Market Support: The PBOC has provided support to the stock market over the past year by introducing structural monetary policies and assisting the sovereign wealth fund sector as a “quasi-stable” mechanism.
• Liquidity Exploration: The central bank is exploring a mechanism to provide liquidity support to non-bank financial institutions in specific scenarios.
• Personal Credit Repair: The central bank plans to introduce a new policy early next year that allows individuals to repair debt default records caused by “force majeure events” (such as the COVID-19 pandemic) in order to eliminate the long-term impact on their financial lives after fully repaying their debts.

Conclusion

Pan Gongsheng's severe remarks on the risks of stablecoins once again illustrate China's cautious attitude towards decentralized crypto assets, emphasizing the central role of the central bank digital currency )CBDC( in maintaining national financial sovereignty and macro-prudential regulation. The challenges he raised regarding AML/KYC, financial vulnerabilities, and monetary sovereignty shocks reflect the growing concerns of global regulators about mainstream stablecoins like USDC and USDT. As the PBOC plans to penetrate more commercial banks and scenarios through e-CNY and explore mechanisms to provide liquidity for non-bank financial institutions, China's dominance in the digital finance sector will be further strengthened. For investors focused on CBDC development and crypto regulation, Pan Gongsheng's speech serves as a key guide to understanding China's financial risk prevention and digital currency policies over the next five years.