China’s National Fund Launches Research on Stablecoins and Digital Assets

TLDR

• China’s National Science Foundation explores stablecoin risks, focusing on the yuan’s role in global digital finance.
• The research aims to analyze how stablecoins affect the yuan, capital controls, and financial stability in China.
• China’s central bank has promoted the e-CNY, yet stablecoins raise questions about international competition and control.
• The research will inform China’s strategy in international rule-making for digital assets and financial systems.

China’s largest government-backed research funder, the National Natural Science Foundation of China (NSFC), has initiated a study into the impact of stablecoins and their cross-border monitoring. This move highlights Beijing’s growing interest in digital assets, coupled with a wariness of their risks. The NSFC has posted a circular inviting applications for research projects focused on stablecoins, their potential for systemic risk, and the challenges they pose to China’s monetary system.

The NSFC, an arm of the Ministry of Science and Technology, manages vast annual funding, supporting research critical to China’s economic development. The foundation’s latest research push aims to investigate the potential dangers of stablecoins, particularly their influence on the yuan and China’s strict capital controls.

Stablecoins and the Challenge to the Yuan

The NSFC’s circular expressed concerns that private stablecoins, especially those pegged to the US dollar, could undermine the effectiveness of China’s capital controls. The document states that these digital assets “present a latent challenge to the yuan” as US dollar-backed stablecoins expand their global presence.

Given that stablecoins offer a new, decentralized way of conducting transactions across borders, they pose a direct challenge to the centralized control that Beijing exerts over its financial system.

While the Chinese government has long held a cautious stance toward cryptocurrencies, the rise of stablecoins, which are pegged to fiat currencies like the US dollar, has brought fresh urgency to the issue. As stablecoins gain traction in global finance, China is faced with balancing their potential benefits with the risks they present to its financial sovereignty.

Research Initiative and Financial Impact

The NSFC has allocated grants of 200,000 to 300,000 yuan ($28,042 to $42,063) for researchers examining how China should address the challenges brought by global stablecoins.

The research aims to offer policy suggestions on how to handle these digital assets and contribute to digital finance governance. The application deadline for research proposals is October 9, with the resulting studies expected to be completed within 10 to 12 months.

Although China has been wary of decentralized cryptocurrencies like Bitcoin, the government has shown more openness to the concept of stablecoins, particularly those pegged to the yuan. The research will play a critical role in shaping China’s approach to digital assets, as the country explores the feasibility of a yuan-backed stablecoin to promote the international use of its currency.

China’s Strategy for Digital Asset Regulation

This move by the NSFC follows recent global developments around stablecoin regulation. The U.S. has made significant strides, with President Trump signing the GENIUS Act into law, allowing for the legal use of US dollar-backed stablecoins.

Meanwhile, Hong Kong’s Stablecoin Ordinance and other regulatory developments in the West have pushed China to reconsider its position.

China’s central bank, the People’s Bank of China (PBoC), has been at the forefront of the country’s digital currency initiatives, notably with the introduction of the digital yuan (e-CNY). However, despite China’s efforts to advance the e-CNY, it faces the challenge of maintaining control over its financial system as stablecoins gain global acceptance. A yuan-backed stablecoin would help promote the yuan internationally, but it would also require careful regulatory oversight to avoid destabilizing the country’s digital payments infrastructure.

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