USDT Impact and the RMB Defense Line: The True Logic Behind China's Stablecoin Regulation

As the trading volume of USDT continues to expand, the RMB exchange rate bears invisible pressure from stablecoins. The recent “sudden shift” by Chinese regulators becomes understandable. This is not a temporary policy born out of whimsy, but a defensive battle concerning monetary sovereignty. From cracking down on trading speculation to precisely targeting stablecoins, the evolution of regulatory logic reflects a clear awareness of a deeper risk.

US Dollar Stablecoins and the RMB Exchange Rate: Why Closure Is Necessary

In recent years, regulatory efforts focused on “trading behavior”—shutting down exchanges, cutting off access to trading accounts—with the core goal of protecting investors’ interests. But this round of targeted actions against stablecoins and RWA (real-world asset tokenization) follows a completely different logic.

Stablecoins (especially USD-pegged USDT, USDC) are essentially a channel connecting fiat currency and the crypto world. Previously, regulation involved setting obstacles along this channel to hinder capital flows; now, regulators realize that as long as this channel exists, inflows and outflows of USDT will exert ongoing pressure on the RMB exchange rate.

Wang Yongli, former Vice President of the Bank of China, recently stated bluntly: tokens issued by private institutions must not challenge the status of fiat currency. The real implication is that once large-scale circulation of USD stablecoins is permitted domestically, their trading volume could destabilize the RMB exchange rate. Moreover, these USD stablecoins can easily become channels for capital outflows—simply convert RMB into USDT to bypass foreign exchange controls and transfer funds overseas.

From Anti-Speculation to Anti-Permeation: The Deep Shift in Regulatory Logic

The key to understanding this policy shift lies in recognizing the emergence of an “anti-permeation” logic.

Anti-speculation is a form of consumer protection—preventing ordinary investors from being “harvested.” But anti-permeation is a form of financial security defense—preventing the US dollar from penetrating through stablecoins, gradually eroding the position of RMB.

This has a broader international context. As the US promotes the global expansion of stablecoins like USDC and USDT, it is essentially engaging in “digital territorial expansion.” These stablecoins do not require the Federal Reserve to establish physical branches; they can infiltrate any country’s financial system, exert pressure on that country’s currency. This is referred to as “digital dollar hegemony.”

If China relaxes its stance on stablecoins now, it is akin to opening a gap in its own financial firewall. The larger the trading volume of USDT accumulated on RMB territory, the more easily the volatility of the RMB exchange rate can be controlled by fluctuations in USD stablecoins. This invisible but very real monetary competition exerts pressure.

Why RMB Stablecoins Are Rejected: Market Reality and Policy Considerations

Many blockchain practitioners once fantasized about a “strategic rescue” route: if China could issue a compliant “RMB stablecoin” (e.g., CNHC), wouldn’t that be a way to counter USDT?

Wang Yongli’s answer is a cold shower, but with very solid reasoning:

First, the global stablecoin market is already dominated by USDT and USDC, with strong network effects. Newly issued RMB stablecoins would struggle to gain traction; instead, they might open interfaces that make it easier for USD stablecoins to enter the domestic market, ultimately accelerating USDT’s penetration.

Second, China already has the world’s most advanced mobile payment system and the digital RMB (e-CNY). From a regulatory perspective, there is no need for private institutions to act as “middlemen”—since the state already has a secure legal digital currency, why allow a privately issued stablecoin?

Third, stablecoins are currently closely associated with money laundering, scams, and illegal financing in regulators’ eyes. This stereotype is hard to change in the short term. RWA (real-world asset tokenization) further raises new concerns—what if someone packages domestic real estate or equity into tokens and sells them abroad? That would directly breach capital controls.

The Cost of Physical Isolation: Balancing Technology, Flexibility, and Discourse Power

The essence of this regulatory action is “physical isolation”: preventing US dollar stablecoins from impacting the RMB exchange rate externally, and cutting off Web3 channels for capital outflows internally. But this “one-size-fits-all” defense also comes with significant costs.

Technologically, Web3, DeFi, and blockchain infrastructure are becoming the prototypes of the next-generation financial clearing system. Currently, the most advanced innovations worldwide are almost all built on USD stablecoin systems. Cutting off stablecoins, to some extent, also severs China’s connection to the world’s leading blockchain ecosystems. In the long run, if global financial infrastructure truly shifts toward blockchain-based clearing systems, China’s lack of practical environment could lead to a “local network” dilemma, facing technological gaps and risks.

From a regulatory effectiveness standpoint, basic economic principles show that demand does not disappear because of bans. As long as trade companies need rapid international settlement, and residents need asset hedging, underground stablecoin trading will persist. Strict bans may make transactions more clandestine—via Telegram groups, offline cash exchanges, etc.—which increases the difficulty of AML enforcement and monitoring capital flows. Regulators lose their “handles” and can only rely on law enforcement to crack down afterward, raising costs.

From an international competition perspective, China has effectively given up the game in the stablecoin arena. Theoretically, China could issue an “offshore RMB stablecoin” (CNH Stablecoin) to counter USDT’s market position. But current policy direction is to outright deny private stablecoins, which may result in RMB lacking flexible private-sector tools in future digital currency baskets, relying solely on the central bank’s CBDC (digital currency), and thus being less innovative and less internationally penetrative compared to commercial products like USDC.

Going Global or Compliant: Two Paths for Practitioners

The policy is now clear. For Web3 teams still operating domestically, options are limited.

If they insist on doing RWA (real-world asset tokenization) domestically, they are directly crossing the red lines of “illegal fundraising” and “capital controls”—a path that is already closed.

To legally operate on-chain within China, the digital RMB (e-CNY) is the only “official on-chain fiat” direction. Although e-CNY’s features are not yet highly intelligent, its future development will definitely be led by the central bank as a programmable currency. Teams aiming to serve government (G-end) should shift focus from Ethereum to alliance chains and the digital RMB ecosystem.

For many projects, Hong Kong may be the only “valve.” China’s current strategy is likely “strict blockade on the mainland, easing in Hong Kong”—mainland China resolutely clears stablecoins to ensure financial security, while supporting Hong Kong in issuing compliant stablecoins to participate in international competition, making Hong Kong a front line to compete with USDT, USDC on the global stage.

Conclusion: Certainty and Choice

The recent regulatory combination has effectively announced the end of China’s “gray area” Web3 wild growth era. This is disastrous for speculators but may be a form of certainty for genuine builders—once the illusions of “both sides” are shattered, we can clearly see where the red lines are and where the battleground lies.

Either go all out to the international stage or dance within the compliant framework with shackles. There is no other way. This is an inevitable choice in the evolution of USDT, RMB, and stablecoin competition to this stage.