Zhou Xiaochuan, the former head of China’s central bank, has issued a sobering assessment of stablecoins and digital payment networks, cautioning that their rapid rise may bring new vulnerabilities rather than solutions.
In a lengthy article, Zhou argued that the push to decentralize every corner of finance has been overstated. According to him, traditional account-based systems remain efficient and secure, while many stablecoin models still lack the regulatory discipline to handle large-scale adoption.
Concerns Over Market Stability
Zhou emphasized that stablecoin issuers often act with the mentality of central banks “printing money,” minting tokens in search of wider adoption without the same grasp of monetary policy. This unchecked issuance, combined with high leverage in the market, could create a multiplier effect during times of stress, leading to liquidity shocks.
He also warned that price manipulation remains widespread in crypto markets where stablecoins are heavily used, leaving inexperienced investors particularly exposed. With stablecoins now intertwined with real-world asset (RWA) trading, Zhou cautioned that transparency gaps could draw in younger, unprotected investors.
Weak Usage and Regulatory Challenges
Beyond speculation, Zhou questioned whether many stablecoins even meet real economic demand. He suggested that without strong use cases, tokens risk becoming redundant despite regulatory licenses. He further reminded that today’s conventional payment systems already offer extremely low costs, making it difficult for stablecoins to compete once compliance requirements like KYC and AML are applied.
Inadequate Oversight
While measures such as the U.S. GENIUS Act and Hong Kong’s stablecoin framework attempt to tighten oversight, Zhou believes current rules fall short. Critical issues like reserve management — who holds the assets and where — remain unresolved, leaving systemic risks in the event of a crisis.
Bigger Picture
Zhou’s intervention highlights a growing divide between the promise of stablecoins as global payment tools and the reality of their structural weaknesses. His warning echoes a broader concern among regulators worldwide: without stronger guardrails, stablecoins may shift from being marketed as safe digital dollars to becoming flashpoints for instability.
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Alex is an experienced financial journalist and cryptocurrency enthusiast. With over 8 years of experience covering the crypto, blockchain, and fintech industries, he is well-versed in the complex and ever-evolving world of digital assets. His insightful and thought-provoking articles provide readers with a clear picture of the latest developments and trends in the market. His approach allows him to break down complex ideas into accessible and in-depth content. Follow his publications to stay up to date with the most important trends and topics.
Source: https://coindoo.com/former-chinese-central-bank-governor-sounds-alarm-on-stablecoins/