PBOC draws the line! ❌ Stablecoins are 'Virtual Currency' with AML risks!

The People's Bank of China (PBOC) has once again tightened its stance on digital currencies, with financial regulators defining Stablecoins for the first time during a coordination meeting focused on suppressing speculation and illegal trading of virtual currencies. The PBOC explicitly categorized Stablecoins as a "form of virtual currency," not a compliant financial tool.

The central bank highlighted that Stablecoins currently "fail to effectively meet requirements related to customer identification (KYC) and anti-money laundering (AML)," posing significant risks of being utilized for illicit activities such as money laundering, fundraising fraud, and illegal cross-border capital transfers. Consequently, the PBOC strongly reaffirmed its commitment to sustain its crackdown on illegal financial activities associated with virtual currencies.

Impact on Hong Kong's Strategy: Despite this firm regulatory stance from the mainland, industry analysts suggest that this definition will not impede Hong Kong's ongoing initiatives to develop a regulated framework for Stablecoin issuance under the "One Country, Two Systems" principle. Hong Kong is actively exploring a clear licensing system to enable the legal issuance and use of Stablecoins in line with international standards.

Nevertheless, this regulatory clarity drastically restricts the space for Stablecoin speculation and retail application within mainland China. For mainland entities aiming to develop Stablecoin projects through Hong Kong, their scope for business innovation will be severely narrowed, largely confining applications to practical, B2B scenarios such as cross-border payments and supply chain finance, rather than mass consumer adoption. This effectively positions Stablecoins in mainland China as a risk vector requiring strict control, contrasting with Hong Kong's experimental approach to using them as a supplementary financial infrastructure.

The long-term implication is that while Beijing’s stance prioritizes risk control, it provides a clear regulatory boundary. Hong Kong's successful piloting of compliant Stablecoins could eventually offer a model for future policy adjustments on the mainland, though market participants must strictly adhere to the divergent regulatory landscapes to avoid compliance risks.