Li Yang, Chairman of the National Financial and Development Laboratory: Five Discussions on "Stablecoin"

This article is the keynote speech delivered by Li Yang, academician of the Chinese Academy of Social Sciences and chairman of the National Finance and Development Laboratory, at the closed-door seminar on "The Development Prospects of Renminbi Stablecoin" jointly organized by the Digital Financial Cooperation Forum and Shenzhen Xiangmihu International Fintech Research Institute on July 13. The institute compiled it based on the transcript of the speech and authorized the release by the author.

Li Yang

Member of the Academic Division of the Chinese Academy of Social Sciences

Chairman of the National Finance and Development Laboratory

Good afternoon, everyone! I am very pleased to be invited to participate in today's seminar.

The topic of today's discussion is stablecoins. Given that the subject of our discussion is still evolving and we have little research experience in the past, I can only share with you the five questions that I have thought about the most during the research process. Please criticize and correct me if there are any inappropriate points. 1. Why should we pay attention to stablecoins? During the global financial crisis in 2008, a person with the pseudonym "Satoshi Nakamoto" published the white paper "Bitcoin: A Peer-to-Peer Electronic Cash System" and proposed the concept of decentralized currency. Since then, various digital currencies and cryptocurrencies have emerged one after another. According to incomplete statistics, there are more than 1,000 kinds of cryptocurrencies to date. Among them, the development of stablecoins is particularly worthy of attention. Since the launch of the first stablecoin (USDT) in 2014, the development of stablecoins has withstood multiple risk shocks and has entered a fast-track development again since the second half of 2023. In 2020, the global stablecoin market value was only US$20 billion, but by May 2025 it had soared to US$250 billion, an astonishing 11-fold increase in five years.

Why does the world attach great importance to the development of stablecoins? There are two reasons:

First, stablecoins are related to the latest developments in science and technology and their widespread use in the financial field. As we all know, science and technology are the primary productive forces, and economic development and human progress are all driven by the development of science and technology. Therefore, my experience from years of research is that all technological developments related to economic development and financial innovation must be taken seriously and must be studied and researched. Moreover, an obvious trend is that the development of stablecoins is driving the comprehensive iteration and upgrade of the entire monetary and financial infrastructure. Second, at least eleven countries and regions, including the United States, have entered the legislative process on the development and regulation of stablecoins (among which, on July 17, the U.S. "Guidance and Establishment of the National Innovation Act for Stablecoins in the United States" was passed by both houses of Congress with a high vote, and on July 18, President Trump signed the bill - Editor's note). It should be noted that these countries and regions all implement a parliamentary decision-making system. As long as a proposal enters the legislative process and is passed, and then signed by the head of the executive branch, it constitutes the law of the country and forms a corresponding system. If a government department does not implement the system, it is illegal, and the head of the executive branch cannot change its orders overnight. Today, the United States still occupies the world's first position in the fields of economy, trade and finance. Its stablecoin already exists legally, and we will not be able to avoid it when dealing with the country in the future. We must of course take such a fait accompli seriously and take positive countermeasures.

Second, the development of stablecoins: maintaining the US dollar or creating a new international monetary system?

The legislative description of the United States' "Guidance and Establishment of the United States Stablecoin National Innovation Act" ("GENIUS Act") clearly states that there are three goals for promoting the development of stablecoins:

It can be seen that the main purpose of launching stablecoins is to maintain and strengthen the international status of the U.S. dollar, and the cycle of stablecoins-U.S. dollars-U.S. debts has created a new expansion scenario for the U.S. dollar. This design has not weakened the status of the U.S. dollar, but has extended the privilege of seigniorage to the world of blockchain, which has enabled the U.S. dollar hegemony to complete an adaptive evolution in the field of digitalization. In 1944, the Bretton Woods system backed the dollar with gold, in 1971 the petrodollar system empowered the dollar with commodities, and in the 1980s the U.S. government debt provided a new source of liquidity for the dollar. Today, the mechanism of stablecoins uses blockchain technology to create a new real application scenario for the dollar. In fact, every dollar stablecoin circulating in cross-border payments is an on-chain expansion of the dollar's power.As U.S. Treasury Secretary Benson bluntly said: "We will use stablecoins to maintain the dollar's position as the world's main reserve currency."At present, more than 90% of the underlying assets of major stablecoins such as USDC and USDT are U.S. dollars and U.S. dollar assets.

At present, the main function of stablecoins is still a decentralized payment mechanism. To some extent, stablecoins that make decentralized on-chain payments are actually playing against the SWIFT system that is controlled by the United States. I think it is worth studying how the United States will deal with the relationship between the two systems in the future.

According to the theory of finance, money has six functions, among which all other functions can be replaced, only the payment and settlement function is exclusive to money, and stablecoins specialize in payment and settlement, and their efficiency is much higher than traditional mechanisms. According to my observation, the domestic industry and academia pay too much attention to the "creation" of money, but have always paid insufficient attention to the payment and settlement function of money, which has led to a considerable degree of unconstrained development of technology companies in the payment and settlement field in my country, and caused some confusion in the currency field in the past few years.

Another role of stablecoins is to become a new carrier for the United States to promote dollarization under digital conditions. Previously, due to severe inflation, many Latin American countries have "re-dollarized". Now, through the US dollar stablecoin, this new type of dollarization has been implemented more smoothly. In this process, the United States has been able to "cut the leeks of more countries."

In short, I think that the "GENIUS Act" has undoubtedly enabled the United States to seize the commanding heights in this competition concerning the future of currency and the international monetary system, and has put tremendous pressure on other major competing currencies such as the euro, yen, pound and renminbi. This means that

the global expansion of the US dollar stablecoin may weaken the status and influence of other currencies in the international monetary system, which is one of the main reasons why we should pay attention to and seriously study stablecoins.

3. Return to the basic theory of money

The latest development of the "currency circle" forces us to return to the most basic monetary theory again and again.

Now, I am afraid that no one can provide a definition of money that is generally accepted by everyone. According to the finance textbook, money "is a special commodity that is fixed as a general equivalent." The essence of this definition is "general equivalent", that is, it is the pricing scale and transaction intermediary of all other commodities; as for the positioning of "special commodities", it obviously needs to keep pace with the times, because commodity money has long withdrawn from the stage of history. I think that

"general equivalent" highlights the pricing and payment and settlement functions of money, which should become our basic methodology for studying all monetary and financial issues. I think that when studying the currency problem, we must have a "historical" perspective. In Marxism, when discussing the "historicity" of a thing, it means that the thing is not innate: it has the conditions and reasons for its emergence, and it must also have the conditions and reasons for its extinction. Therefore, as Marx profoundly pointed out, the study of all things should mainly answer the three major questions of "why, why, and how". Engels elaborated on the Marxist view of history in a more general way: currency and all the problems of commodity economy have not always existed. Since they are not innate, they will eventually disappear. Engels said very clearly that the emergence of currency is due to the division of labor, exchange and private ownership: the division of labor and exchange can improve efficiency, which is a natural law. They will certainly not disappear, but when private ownership exists, exchange must have a thing-centered medium recognized by all economies. Once the world moves towards Datong, division of labor and exchange will still exist, but there will be no need for the intermediary of currency. I review this philosophical research method here to explain my position on the study of stablecoins: in my opinion, technically, stablecoins are likely to be a realistic path leading to the demise of currency (that is, answering the question of "how").

In addition to Marxism, Keynes also made great contributions to the study of monetary issues, mainly in three aspects:First, Keynes first systematically discussed the existence of deposits as a form of currency.Moreover, he pointed out: In reality, it is loans that create deposits, and most payment settlements are achieved through the "transfer" of deposits between bank accounts. Since deposits are currency and deposits are the creation of commercial banks, the most dissenting opinions in our country's implementation of central bank digital currency are commercial banks, because the "toC" construction mechanism of central bank digital currency cancels the mechanism for commercial banks to create deposits through loans, thereby eroding the foundation of commercial banks' existence. Second, the concept of "endogenous money" was proposed. There is an eternal proposition in the field of monetary economics, which is "Is money useful?" For this question, there have always been two views on money: "exogenous" and "endogenous" - if it is confirmed that money is "exogenous", then money is "useless", and the increase or decrease in its supply mainly affects prices; on the contrary, if it is confirmed that money is "endogenous", then money is considered "useful", because money is created through the process of "loan-deposit", and loans obviously have a great impact on the real economy, and they have a comprehensive impact on economic growth, interest rates and prices. In other words, the theory of "endogenous money" constitutes the theoretical basis for contemporary central bank macroeconomic regulation, and this basis also comes from Keynes' research. Thirdly, Keynes was a supporter of the demonetization of gold. He advocated that money should be "manageable" and its concept should be constantly abstracted, which is reflected in his definition of money: "The currency of calculation, that is, debt, price, and general purchasing power, is the basic concept of monetary theory."

Another economist, Minsky, has also made significant contributions to the study of currency, and has given a very forward-looking and targeted study on the phenomenon of the current proliferation of cryptocurrency.The initiator of the "denationalization of currency" theory believes that no matter who can issue currency, the key is whether someone accepts it. As long as someone accepts it, the issued thing is currency. This definition highlights that the essence of currency is credit. In his view, there is no need to make a very clear distinction between money and non-money. What needs to be studied is a series of items that are accepted by the market to varying degrees, and their acceptance will decrease from high to low levels until those things that cannot serve as money.

You might as well think about it. From a functional point of view, food stamps and various tickets under the traditional system, and the various points we encounter everywhere now, have played the role of money to a certain extent and within a certain range. In other words, we all participate in this "currency creation process". Many quantitative studies have pointed out that in all money supply, only 5% can be explained by central bank behavior, and the other 95% is attributed to commercial banks and other institutions.

The above brief review of several monetary theories is to illustrate a truth: money and its creation are not mysterious. Unveiling the mysterious veil, many problems of stablecoins and currency circles can be seen at a glance.

Fourth, monetary sovereignty cannot be circumvented

There is a view that stablecoin is a super-sovereign currency that will infringe on our monetary sovereignty. I do not agree with this view. This is the view that:As a social and economic phenomenon, the essence of currency is national sovereignty, which is the fundamental attribute of currency.As long as the world is still composed of sovereign states, the sovereign attribute of currency will not be eliminated, and there will be no "super-sovereign currency". In recent years, there have been many new technological innovations in currency, but none of them can circumvent this sovereignty. Everyone values the cross-border payment function of stablecoins. Indeed, the efficiency of cross-border payments based on stablecoins has been greatly improved. However, hidden behind cross-border payments is a problem of exchange of different currencies, and most studies are vague about this. This also shows that when it comes to cross-border payments, the exchange of currencies is something that cannot be circumvented anyway. Simply put, no matter what currency the United States issues, it cannot be used directly to purchase Chinese products and services, and it cannot get past the barrier of exchange; currency as a country's sovereignty is clearly demonstrated here. Fundamentally speaking, a country's economic sovereignty mainly consists of two rights: one is the right to tax, and the other is the right to issue currency. These two rights cannot be transferred. If any one of them is lost, then the country will no longer be a country. Of course, it is worth noting that: the main function of stablecoins is payment and settlement, and payment and settlement are the basic functions of currency. In this sense, stablecoins have an impact on the sovereign currency system of various countries. The development of domestic Alipay and WeChat Pay has had an impact on my country's monetary policy. As mentioned above, the industry and research community in my country did not pay attention to the payment and settlement functions in the past. Therefore, for a long time, our monetary authorities only cared about and strictly managed two types of things: one is the capital pool, because with a capital pool, it is a commercial bank and must be regulated as a bank; the other is the IOU that can be divided and continuously traded. IOUs with this feature are defined as bonds and must also be regulated. However, many people did not expect that Alipay and WeChat Pay would enter the monetary field on a large scale just by relying on the payment and settlement functions, and greatly eroded the territory of the monetary sector. It can be said that our subsequent series of rectifications and even the launch of the central bank's digital currency were all aimed at responding to this situation.

Stablecoins are new things, so for their research, we must open up another perspective, which is the problem of the stratification of money.

The hierarchical study of monetary issues is a Marxist tradition. The second and third volumes of Capital spent a lot of space on studying the mixed circulation of metal currency, commercial bills and paper money, and discussed the relationship between bill clearing houses and commercial bills, a "real commercial currency". These studies provide us with a paradigm for studying currency in layers. Currency has always been layered. For example, the central bank's money supply statistics, which are arranged in the order of M0, MI, M2, etc. and published regularly, are a layered currency system arranged based on liquidity differences.

The emergence of digital currency has made the form of currency increasingly complex, and the "layering" of currency has also become increasingly complex. This is one of the reasons why the financial community calls finance the "financial superstructure". Among various hierarchical structures, the assets at the bottom are those with "no counterparties". This refers to assets whose value is determined outside the system and constitutes the final settlement means for all transactions, so there is no transaction risk or default risk. For example, the value of gold in the past, and the current US dollar and RMB, is determined by itself, and other currencies are its "IOUs". Under the gold standard, the first layer is gold and silver, and the second layer is bills of exchange and other bills issued by commercial banks; they each play different roles. Under the central bank system, the central bank is the issuing bank, the government's bank, and the bank of banks, so it has an exclusive monopoly on the issuance of the underlying currency. In essence, the currency issued by the central bank does not require a counterparty; the central bank's balance sheet does give a counterparty, but that is just a formality. After the addition of Bitcoin and stablecoins, the situation of currency stratification will become more complicated. Now people tend to list gold, US dollars and Bitcoin as the first-tier currencies. Bitcoin here functions like gold, which is "digital gold". Other categories such as Bitcoin deposits and other digital currencies are all currencies in the upper layers of the "currency pyramid". Here, stablecoins are nothing more than adding a layer of things that can be used as a means of payment to the ever-increasing currency pyramid.

The theory of currency stratification is very important. Because, considering the problem from this perspective, we can reasonably explain various financial innovation activities; it can also add a new analytical angle to the problem of global debt expansion.

Fifth, cultivating a strong currency must be promoted comprehensively

General Secretary Xi Jinping proposed the great goal of "building a financial power" and made a comprehensive analysis of the elements of a financial power.The elements of a financial power include "six strengths", and the first one is "strong currency". The theoretical meaning of this list is very profound, because without a strong currency, it is even more stupid and cannot be called a financial power. The United States has gone to great lengths to pass the Stablecoin Act in order to maintain the dollar and make the dollar "stronger".

To cultivate a strong currency in China, it is necessary to promote it comprehensively on two lines.

On the one hand, since any form of currency cannot avoid the issue of monetary sovereignty, firmly promoting the internationalization of the RMB is still the core task of cultivating a strong currency (RMB). In this sense, all our past efforts, including expanding local currency swap agreements, promoting the RMB cross-border payment system, improving the RMB global clearing service network, and enhancing the use of RMB in investment and trade in the "Belt and Road" countries, should continue unswervingly.

On the other hand, it must be seen that the integration and development trend of stablecoins, cryptocurrencies and traditional financial systems is difficult to reverse. Stablecoins and cryptocurrencies will achieve complementary development with central bank digital currencies, comprehensively improve payment efficiency and reduce payment costs, reconstruct the global payment system, and drive the development of decentralized finance (DeFi) and digitalization of assets (RWA). Although some countries only supported central bank digital currency experiments in previous years, while other countries focused on supporting the innovative development of stablecoins and cryptocurrencies, the latest developments have mostly turned to a model that supports the co-development of the three. This is true for the European Union, Japan, the United Arab Emirates, Singapore, Hong Kong, China, etc.

For China, we also have to coordinate the relationship between the central bank's traditional currency and the digital RMB, as well as Alipay, WeChat Pay and other financial innovations that originated from the "private sector". It should be noted that the digital RMB, Alipay and WeChat Pay are all based on bank deposit accounts as underlying assets. From the perspective that deposits are the main body of currency, they have great similarities with stablecoins. Therefore, as long as the system design is reasonable, there should be no problem in allowing these official and private payment mechanisms to develop in a coordinated manner.

Regarding the path for further development, we can work on both onshore and offshore directions. Onshore, it is to clarify the relationship between digital RMB, Alipay, WeChat Pay and traditional payment systems. Further, it can be considered to approve several large state-owned banks to issue RMB stablecoins. my country has decided to set up a "Digital RMB International Operation Center" in Shanghai, and it is recommended to conduct experiments on RMB stablecoins based on this.OffshoreIt is relatively complicated. Since the Hong Kong dollar implements a linked exchange rate system with the US dollar, the offshore stablecoin based on the Hong Kong dollar is essentially closer to the US dollar stablecoin. This situation has both disadvantages and advantages. In fact, there is huge room for operation. Proper use of this space may form a channel to "open up" the connection between the US dollar stablecoin and the RMB stablecoin, thereby making new contributions to the internationalization of the RMB.