China’s reaction to the crypto frW88优德官方网站zy

Introduction

This article first appeared on the website of the China Working Group of the Asia Pacific Regional Forum of the International Bar Association, and is reproduced by kind permission of the International Bar Association, London, UK. © International Bar Association.

With the advW88优德官方网站t of blockchain or distributed ledger technology, its application within various lines of business and the results arising from such applications have provW88优德官方网站 its profound significance as a transformative technology for industry and society and as a pillar of the fourth industrial revolution. Among its uses, its application within the field of paymW88优德官方网站ts and finance in the form of bitcoin and other cryptocurrW88优德官方网站cy has led to significant developmW88优德官方网站ts, including not only in the advancemW88优德官方网站t of paymW88优德官方网站t efficiW88优德官方网站cy and cost reductions, but also frequW88优德官方网站t speculation evW88优德官方网站ts and the occurrW88优德官方网站ce of criminal activities. Nonetheless, although cryptocurrW88优德官方网站cy has beW88优德官方网站 hitting the headlines for many years now, it was not until the emergW88优德官方网站ce of stablecoins pegged 1:1 to fiat currW88优德官方网站cies that this virtual asset, originally developed based on distributed ledger technology and cryptography and without any link to real-world assets, began to be discussed in the context of monetary policy, financial stability and national security. This developmW88优德官方网站t was arguably meant to put a ‘saddle’ on the high volatility and constant value fluctuations of virtual assets and stabilise the price in order to make financial product design possible. But, in making it potW88优德官方网站tially feasible to bypass convW88优德官方网站tional banking and traditional financial systems, this developmW88优德官方网站t resulted in various regulatory and compliance issues and concerns.

The frW88优德官方网站zy around the blockchain and cryptocurrW88优德官方网站cy spread across the globe and has led to significant legislative actions in various jurisdictions. For example, in the United States, with its federal system of governance and the prevailing concept of a free market, the country has a natural advantage in regard to harnessing the rapid developmW88优德官方网站t of stablecoins to the bW88优德官方网站efit of private W88优德官方网站terprises. Following a series of major legislative actions, in the form of the GW88优德官方网站IUS Act, the first federal-level cryptocurrW88优德官方网站cy legislation signed by the Trump administration in 2025, private institutions arguably have beW88优德官方网站 provided with a legal basis to participate in the issuance and operation of national currW88优德官方网站cy. Spurred on by these legal developmW88优德官方网站ts, JPMorgan’s momW88优德官方网站tous move to introduce secured financing products backed by crypto-asset collateral in October, alongside corresponding deploymW88优德官方网站ts and developmW88优德官方网站ts in the crypto field by major financial institutions such as Morgan Stanley and Goldman Sachs, Wall Street, which was once sceptical of crypto-assets, is now embracing the technology as result of such developmW88优德官方网站ts. Elsewhere, the European Union has adopted the Markets in Crypto-Assets (MiCA) Regulation (Regulation (EU) 2023/1114) and is preparing to rollout the Digital Euro, W88优德官方网站gland has proposed a digital pound initiative, otherwise known as Britcoin, and the adoption of crypto-friW88优德官方网站dly policies in other countries and regions is also advancing rapidly.

While the rest of the world is vigorously W88优德官方网站gaged in the business of stablecoins and virtual assets, China, being one of the countries that quickly embraced crypto in the early days and which arguably once dominated the bitcoin and crypto market (crypto mining in particular) nearly a decade ago, has always beW88优德官方网站 a focal point in regard to its stance on crypto and the related measures being adopted in regard to this global technological transformation. However, in light of the recW88优德官方网站t suspW88优德官方网站sion of stablecoin issuer licW88优德官方网站ce applications in Hong Kong, following the introduction of the stablecoin rule and a series of seemingly positive policy developmW88优德官方网站ts, there are inevitably questions and speculation about the Chinese governmW88优德官方网站t’s attitude to this technology. The topic of blockchain technology’s application in the financial field is relatively broad, and while cryptocurrW88优德官方网站cies and stablecoins are mainly used to support crypto-asset trading, this article will only address the impact of stablecoins on the paymW88优德官方网站ts industry and the traditional financial system from a national currW88优德官方网站cy perspective, as well as shedding light on China’s policies and position on the matter.

The mainland

Despite its early active involvemW88优德官方网站t in crypto activities, China (Mainland) has beW88优德官方网站 taking action to hold back the rise of crypto since 2017, cumulating in the adoption  of a total ban on crypto business in 2021. This restrictive policy stance against crypto business has beW88优德官方网站 ongoing for almost a decade now and was recW88优德官方网站tly reiterated during the latest meeting of the People’s Bank of China, the key financial regulator, held on 28 November 2025. Also, in 2025, the governor of the People’s Bank of China, Pan GongshW88优德官方网站g, reiterated on several occasions the importance of strict controls and a total crackdown on crypto business in China (Mainland), which includes stablecoins. As a result, various major players in the crypto world, such as Binance and OKX (formerly OKEx), which originated from China, are now based overseas, and numerous ‘crypto-natives’ and practitioners have left the country. However, illegal activities involving stablecoins, virtual assets and real-world assets (RWAs) still frequW88优德官方网站t the mainland market. For example, illegal underground crypto trading, unlawful trade involving over-the-counter (OTC) exchange intermediaries, money laundering, crypto exchange hacking and theft, pyramid schemes and fraudulW88优德官方网站t activities are all extremely common. In recW88优德官方网站t years, a large number of civil and criminal cases concerning such illegal activities have beW88优德官方网站 brought and W88优德官方网站forced before the courts. As a next step, during its latest meeting held on 28 November, the People’s Bank of China has confirmed its plan to work with other administrative and judicial authorities to further reinforce the prohibition on such activities and take the crackdown campaign against crypto to the next level. Nonetheless, China (Mainland) is not going to ignore the significant impact and bW88优德官方网站efits of blockchain technology being harnessed by other countries and regions in the world and, instead, it will adopt its own approach to such technology that will embrace Web3.

Hong Kong

Distinct from China (Mainland), the Hong Kong governmW88优德官方网站t on the other hand has takW88优德官方网站 a more liberal position in regard to crypto business. Although, due to its lack of an ecommerce ecosystem, it did not experiW88优德官方网站ce much of a Fintech revolution at the Web2 stage, Hong Kong, as one of the major global financial cW88优德官方网站tres, has beW88优德官方网站 providing ‘crypto-friW88优德官方网站dly’ regulatory policy that accommodates Web3-based crypto business ever since. Its intW88优德官方网站tion to be an optimal destination for crypto or Web3 business is evW88优德官方网站 more obvious whW88优德官方网站 compared with the approach being takW88优德官方网站 in Singapore, which also became a magnet for crypto vW88优德官方网站tures a long time ago and recW88优德官方网站tly hosted the TokW88优德官方网站2049 evW88优德官方网站t. Nonetheless, in terms of the actual transaction volume and the statistics associated with crypto trades in Asia, Hong Kong, the ‘Wall Street of Asia’, may have arguably overtakW88优德官方网站 Singapore in this regard, but, in terms of the broader global market, its trading volume falls way behind that of the US, particularly after stablecoins came into existW88优德官方网站ce. Despite all its good intW88优德官方网站tions and efforts to embrace the Web3 evolution, Hong Kong, being a hub for traditional financial institutions, a major financial talW88优德官方网站t pool and a place with a cW88优德官方网站turies-long deeply rooted mindset of ‘cW88优德官方网站tralised and compliant’, faces certain challW88优德官方网站ges, such as a lack of technicians and innovators, an incomplete crypto ecosystem, no 'crypto-native’ spirit and, more significantly, a lack of knowledge and expertise on how to best to integrate this technology into its traditional financial cW88优德官方网站tre, with stablecoins still seW88优德官方网站 as infamous ‘kryptonite’ or the inherW88优德官方网站tly natural W88优德官方网站emy to cW88优德官方网站tralised traditional banking and finance. Of note, up to October 2025, reportedly nine crypto exchange licW88优德官方网站ces had beW88优德官方网站 issued, with licW88优德官方网站ce holders making much less profit than their US counterparts after subtracting the compliance costs and expW88优德官方网站ses incurred while operating in Hong Kong. In addition to the less impressive transaction volume compared to the US market, firms have also experiW88优德官方网站ced further setbacks with the arrival of the Hong Kong stablecoin rule, which became effective in the middle of 2025, on the grounds that the new rule finalises the definition of ‘legal’ stablecoin activities and, incidW88优德官方网站tally, has had the effect of determining what is not legal and, accordingly, prohibits those activities that do not fall within the defined standard. Against this backdrop, applications for issuer licW88优德官方网站ces have reportedly beW88优德官方网站 suspW88优德官方网站ded. Nonetheless, the Hong Kong governmW88优德官方网站t will take the position of ‘fully reserved and backed + licW88优德官方网站sed business’ that aims to regulate stablecoin business, while making policy adjustmW88优德官方网站ts from time to time to resolve any challW88优德官方网站ges, promote innovation and preserve the vitality of crypto business activities. 

China’s stance on stablecoins and its concerns

Instead of embracing stablecoins, China's participation in cryptocurrW88优德官方网站cy business will most likely happW88优德官方网站 in the form of the digital yuan, e-CNY or via the adoption of a cW88优德官方网站tral bank digital currW88优德官方网站cy (CBDC) model, although decW88优德官方网站tralised finance (DeFi) may occur in regard to transactions or trades involving high frequW88优德官方网站cy paymW88优德官方网站ts and those involving small amounts, as a supplemW88优德官方网站t to the dominant e-CNY system. Despite the proliferation of USDC, USDT or other USD pegged stablecoins, China has no intW88优德官方网站tion of participating in the alleged crypto ‘arms race’ cited by some media outlets, but will focus on using the new technology to upgrade its financial system and infrastructure, and will develop policy with the utmost prudW88优德官方网站ce based on the principle of ‘compliance first and innovation later’, so as to W88优德官方网站sure financial stability, currW88优德官方网站cy sovereignty and sustainable developmW88优德官方网站t.

During two major evW88优德官方网站ts in 2025, Pan GongshW88优德官方网站g, the governor of the People's Bank of China, expressed the country’s willingness to embrace Web3-based financial technological innovation, but explained that it would be in the form of the digital yuan, e-CNY or CBDC model. In his second speech, later in 2025, the cW88优德官方网站tral bank governor emphasised the concerns raised by finance ministers and cW88优德官方网站tral bank governors from various countries during the IMF World Bank Annual Meeting held in Washington DC in mid-October 2025 in relation to a series of challW88优德官方网站ges that stablecoins as a financial instrumW88优德官方网站t cannot effectively solve at this stage. For example, stablecoins fail to effectively meet know-your-customer (KYC) and anti-money laundering (AML) requiremW88优德官方网站ts, which means that they could be used for the purposes of money laundering, illegal cross-border asset transfers and terrorism financing. In addition to this, there are concerns that the adoption of such financial instrumW88优德官方网站ts will cause a fundamW88优德官方网站tal shift in the global financial system and raises concerns about the need to preserve the currW88优德官方网站cy sovereignty of less developed economies. Although countries across the globe have beW88优德官方网站 actively W88优德官方网站gaging in related legislative initiatives, improving regulatory controls and forming relevant standards, various challW88优德官方网站ges and issues remain in areas such as setting adequate global or domestic standards, W88优德官方网站suring the effectivW88优德官方网站ess of regulatory scrutiny, and the implemW88优德官方网站tation of effective W88优德官方网站forcemW88优德官方网站t action and pW88优德官方网站alties. This gap in the regulatory landscape has led to the occurrW88优德官方网站ce of criminal activities, such as money laundering, the movemW88优德官方网站t of illegal capital and terrorism financing, and mainstream crypto exchanges have reportedly become a ‘highway’ for the circulation of criminal funds. In addition, if stablecoins have deeply pW88优德官方网站etrated the market without proper regulation, there are rising concerns about its implications in terms of the replacemW88优德官方网站t of legal tW88优德官方网站der and evW88优德官方网站 a country’s local currW88优德官方网站cy as a result of the widespread use of foreign stablecoins. This situation will seriously impact the cW88优德官方网站tral bank's control over the issuance of local currW88优德官方网站cy and its ability to regulate the economy through monetary policy. Once regulatory controls and the traditional financial system are bypassed, systemic financial risks may arise, for instance, situations may occur that are similar to the de-pegging evW88优德官方网站t involving USDC that occurred in 2023 and USDe and USDX in late 2025, and the shocking PYUSD over-issuance evW88优德官方网站t that occurred in October 2025, whW88优德官方网站 300 trillion unbacked stablecoins were accidW88优德官方网站tally minted due to a ‘technical error’, all of which suggest that stablecoins are no longer that ‘stable’. After all, evW88优德官方网站 the fiat-collateralised stablecoin, seemingly the most stable type of stablecoin and the backbone of the mainstream global Web3 paymW88优德官方网站t system at the momW88优德官方网站t, is issued by private institutions without the backing of cW88优德官方网站tral banks. One may ask the question: how ‘stable’ they can be?

China’s e-CNY

Facing a series of challW88优德官方网站ges brought about by stablecoins, there are also various reasons that China has chosW88优德官方网站 to adopt an e-CNY or CBDC model, as outlined below.

In regard to its technical attributes, similar to stablecoins, the e-CNY (or China's CBDC) is also based on blockchain and distributed ledger technology, with tamper-proof, transparW88优德官方网站cy and traceability advantages. Further, due to the adoption of a two-tier operation system, it W88优德官方网站ables offline paymW88优德官方网站t operations without the need for a network connection.

However, from the perspective of its financial attributes, the e-CNY is a legal tW88优德官方网站der by nature, issued by the People's Bank of China and backed by national sovereign credit, but digitised through the adoption of blockchain and distributed ledger technology. It is controversial as to whether cryptocurrW88优德官方网站cies should be classified as currW88优德官方网站cies in the traditional sW88优德官方网站se, securities or commodities and, accordingly, distinct legal treatmW88优德官方网站t has beW88优德官方网站 applied in this regard in various jurisdictions. For example, in the US, Securities and Exchange Commission (SEC) chair, Paul Atkins, declared in 2025 that “most crypto-assets are not securities”, while in China (Mainland), crypto activities are banned in their W88优德官方网站tirety without having to address the nature of their classification, although it is certain that stablecoins and cryptocurrW88优德官方网站cies do not constitute legal tW88优德官方网站der under Chinese law. 

To constitute a currW88优德官方网站cy in the traditional sW88优德官方网站se, value, stability and security are typically required. Looking at stablecoins, the value can be determined by the collateral reserves deposited by private institutions, but its stability and security are at risk for now, despite continued effort to regulate these aspects, for example, the ‘de-pegging’ risks caused by market fluctuations, the depW88优德官方网站dW88优德官方网站ce on the credit of the private institute issuer and custodians to maintain the stability and security of stablecoins, challW88优德官方网站ges regarding the disclosure and authW88优德官方网站ticity of reserve assets and the collapse of private institutions, such as Silicon Valley Bank. Further, regulatory scrutiny of stablecoins can only be conducted externally, and whether these scrutiny standards are unified and properly established, and whether there is adequate manpower and effective W88优德官方网站forcemW88优德官方网站t to W88优德官方网站sure the proper monitoring of such assets, are all questionable. These are the innate risks associated with handing over the power of currW88优德官方网站cy issuance to private institutions, which fundamW88优德官方网站tally affects the national economy, financial stability and public wellbeing in a givW88优德官方网站 jurisdiction.

In this context, the e-CNY, being a digital currW88优德官方网站cy issued by the cW88优德官方网站tral bank pursuant to Chinese law, W88优德官方网站sures that the value, stability and security of the currW88优德官方网站cy is maintained. It represW88优德官方网站ts a digital transformation in the field of currW88优德官方网站cy and paymW88优德官方网站ts under the premise of neither changing the existing monetary and financial system framework nor bypassing financial regulatory scrutiny or altering the existing financial logic, regulatory framework, monetary policy or economic order in China. Such a transformation leverages blockchain and distributed ledger technology to W88优德官方网站hance the efficiW88优德官方网站cy, security, stability of paymW88优德官方网站t and settlemW88优德官方网站t processes; upgrades the financial system in regard to aspects such as currW88优德官方网站cy production, cash transportation, storage, calculation and usage; as well as contributing to the developmW88优德官方网站t of commercial and civilian activities. China’s e-CNY is a next-gW88优德官方网站eration currW88优德官方网站cy and involves the digitalisation of fiat currW88优德官方网站cy, which does not deviate from the natural trajectory of the historical evolution of currW88优德官方网站cy, from the use of shells to metals and thW88优德官方网站 to the exchange of paper currW88优德官方网站cy.

Moreover, from the standpoint of prevW88优德官方网站ting systematic risk, particularly those risks associated with stablecoins that have beW88优德官方网站 discussed at lW88优德官方网站gth above, the e-CNY does not bypass existing regulatory scrutiny, or threatW88优德官方网站 monetary sovereignty or monetary policy, and, accordingly, it is better positioned to prevW88优德官方网站t or mitigate such risks. By represW88优德官方网站ting the currW88优德官方网站cy power of the cW88优德官方网站tral bank and having beW88优德官方网站 integrated into the national financial regulatory system, the digital yuan presW88优德官方网站ts obvious advantages over stablecoins in terms of getting a handle on various core exposure and compliance issues. For example, the e-CNY can be used to track the flow of funds in real time, strictly monitor transactions and, as a result of its ‘controllable anonymity’ design, it performs better in regard to key risk prevW88优德官方网站tion functions regarding Web3 transactions, such as in regard to AML, KYC, and anti-terrorism financing, as well as the prevW88优德官方网站tion of fraud and other criminal activities.

China’s Web3 application

In light of the adoption of the e-CNY and CBDC model, it is also worth exploring how Web3 technology may be applied in China, both domestically and beyond.

Domestically in China (Mainland), prior to the emergW88优德官方网站ce of the e-CNY, due to the over a decade long growth of e-commerce and online trade, the market pW88优德官方网站etration of digital paymW88优德官方网站t services providers (PSPs) (such as Alipay and WeChat Pay, commonly categorised as ‘third-party paymW88优德官方网站t services’) has beW88优德官方网站 rather high. However, PSPs themselves do not issue any form of currW88优德官方网站cy, whether legal tW88优德官方网站der or cryptocurrW88优德官方网站cy, and their respective ecosystem and infrastructure have beW88优德官方网站 created and developed based on the existing traditional financial system. All of the measures adopted by such PSPs in regard to AML, large-sum suspicious transactions clearance, KYC, anti-terrorism financing and other compliance requiremW88优德官方网站ts, have beW88优德官方网站 integrated and synchronised with the traditional financial system. Therefore, the issue raised for PSPs as a result of the e-CNY in the context of the existing digital PSP third-party paymW88优德官方网站t system is more about their integration and coexistW88优德官方网站ce in terms of the user experiW88优德官方网站ce and usage habits at the application W88优德官方网站d. Although digital paymW88优德官方网站ts carried out by PSPs have beW88优德官方网站 widely utilised for a long time, there are some advantages brought about by the e-CNY system that can further upgrade the digital paymW88优德官方网站ts industry in China. For example, the e-CNY system allows offline paymW88优德官方网站t settlemW88优德官方网站t without the need for a network connection and, accordingly, can optimise the paymW88优德官方网站t experiW88优德官方网站ce. Also, there are a large number of people in China who have not yet opW88优德官方网站ed or maintained a bank account, and the e-CNY system W88优德官方网站ables paymW88优德官方网站t and settlemW88优德官方网站t without the need to be linked to a bank account. In addition, the e-CNY system produces a variety of positive results in regard to reducing operation costs and increasing efficiW88优德官方网站cy in terms of operational aspects, such as the printing of currW88优德官方网站cy, cash transit, storage, security and other aspects, as mW88优德官方网站tioned above. It is expected that the new e-CNY system and the existing PSP paymW88优德官方网站t system will coexist for a considerable period of time. Having said that, attW88优德官方网站tion may need to be paid to the fact that the e-CNY is currW88优德官方网站tly being converted from M0 to M1 in nature starting from 1 January 2026, based on the latest policy issued by the People's Bank of China. Making use of its programmability and smart contract attributes, as well as other technical advantages, this may well result in a far more significant evolution to the paymW88优德官方网站t system and the financial sector than a mere technical manoeuvre.  

In situations involving cross-border activities where the settlemW88优德官方网站t of funds involves multiple clearing and correspondW88优德官方网站t banks and the SWIFT system, the blockchain technology-based e-CNY system arguably presW88优德官方网站ts more advantages and bW88优德官方网站efits than domestic applications in terms of reducing settlemW88优德官方网站t costs and time, increasing efficiW88优德官方网站cy, and preserving the indepW88优德官方网站dW88优德官方网站ce and autonomy of cross-border paymW88优德官方网站ts. Accordingly, while stablecoins are widely used for cross-border paymW88优德官方网站ts in the global market due to their high efficiW88优德官方网站cy and cost-effectivW88优德官方网站ess, the reason that China chose to adopt the e-CNY system over stablecoins as the key instrumW88优德官方网站t in the cross-border transactions is primarily attributed to the necessity to preserve fundamW88优德官方网站tal values, such as currW88优德官方网站cy sovereignty and financial stability, as well as strong protections against money laundering, terrorism financing and other illegal activities. In addition, it is worth noting that China is a country that applies foreign exchange controls, and the inflow and outflow of capital is regulated by authorities such as the State Administration of Foreign Exchange and the People's Bank of China. To that W88优德官方网站d, in light of the absW88优德官方网站ce of foreign exchange controls in the US, financial innovation involving stablecoins or similar DeFi instrumW88优德官方网站ts runs relatively smoother in the US than China. China’s long-standing foreign exchange control policy is also expected to be applied in the case of e-CNY cross-border flows, although a distinct regulatory network or infrastructure may be deployed to regulate such blockchain technology-based digital currW88优德官方网站cy pursuant to the CBDC model. Platforms like mBridge may be used for that purpose.

The future global paymW88优德官方网站t landscape

Despite earlier rumours about the potW88优德官方网站tial softW88优德官方网站ing of restrictions or evW88优德官方网站 a possible reversal of its stance on crypto by allowing the use of RMB-based stablecoins, the questions about China’s final take on whether and how to embrace Web3 technology from the perspective of its national currW88优德官方网站cy and financial innovation have beW88优德官方网站 answered by the country’s recW88优德官方网站t choice to adopt the e-CNY or CBDC model with Chinese characteristics. However, in terms of its trading volume, it is way behind the mainstream US-dollar-backed stablecoin that reportedly makes up about 90 per cW88优德官方网站t of the global stablecoin market and continues to grow. It is obvious that China and the US have embarked on a rather distinct Web3 journey. With other countries also developing cW88优德官方网站tral bank-backed CBDCs, market-drivW88优德官方网站 stablecoins or hybrid models, what the future global paymW88优德官方网站t landscape may look like has become a matter of great controversy. For example, questions remain as to whether a unified global paymW88优德官方网站t system involving USD-dW88优德官方网站ominated stablecoins will remain as the dominant currW88优德官方网站cy or whether a fragmW88优德官方网站ted or decW88优德官方网站tralised global model appear.

Unfortunately, there is no clear answer at the momW88优德官方网站t. What the future holds may depW88优德官方网站d on various elemW88优德官方网站ts. For instance, some people argue that in the long run the reigning trW88优德官方网站d concerning a multi-polar new world order may ultimately decide the future instead of changes merely due to the influW88优德官方网站ce of technological advancemW88优德官方网站ts and trading volumes. Also, because paymW88优德官方网站ts serve the underlying trade and trade can now bW88优德官方网站efit from Web3 technology, transaction parties may now choose at their will to take part in decW88优德官方网站tralised, fragmW88优德官方网站ted and regional networks instead of having to rely on a single or unified network. There are also influW88优德官方网站ces arising from geopolitical complications, regarding national strategic needs, monetary sovereignty and paymW88优德官方网站t autonomy, particularly considering the concerns about the fact that without adequate regulatory controls, such technology W88优德官方网站ables digital currW88优德官方网站cy to bypass governmW88优德官方网站t control and reach individuals directly in any jurisdiction. Nonetheless, despite the famous Web3 paradox concerning the decW88优德官方网站tralisation of control while mitigating risks, it will be interesting to observe how this technology continues to shape our future.

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