Stablecoins Are Not ‘Prohibited Items’: Here’s What the Experts Say

Stablecoin regulation has become one of the most debated topics in China’s financial and cryptocurrency landscape. As supervision tightens and virtual currency policies mature, many investors wonder whether stablecoins are now treated as illegal or banned assets. Recent comments from industry experts reveal a clearer picture. 

Despite tighter oversight, stablecoins are not considered prohibited items under criminal law. Instead, they are being integrated into a more structured regulatory framework.

This aligns with the broader shift in China’s regulatory philosophy. Rather than framing stablecoins as inherently criminal, regulators aim to limit risks tied to currency substitution, capital outflows, and cross-border arbitrage. The focus is on supervising activities surrounding stablecoins, not criminalizing the assets themselves.

The discussion reflects a major turning point for the stablecoin ecosystem in China, especially as the central bank continues to refine its definition of virtual currencies and financial institutions adjust accordingly.

Key Takeaways

• Stablecoins are classified as virtual currencies but not as prohibited items under criminal law.
• Regulations target activities involving stablecoins, including clearing, trading, and intermediary services.
• The goal is to stop currency substitution and cross-border arbitrage at the source.
• China’s crackdown shrinks the stablecoin operating environment, affecting liquidity and ecosystem growth.
• Expert commentary highlights increasing consensus around regulatory tightening.

Why Stablecoins Are Not Considered Prohibited Items

According to Zhao Binghao, Dean of the Institute of Financial Technology and Law at China University of Political Science and Law, stablecoins should not be viewed as contraband. The central bank’s classification frames them as virtual currencies requiring regulation, not as banned goods in criminal law.

This distinction is essential. In criminal law, contraband refers to goods explicitly outlawed. Stablecoins do not fall under that definition. Instead, authorities treat them as financial instruments requiring strict oversight due to potential risks.

The mistake many people make is assuming that regulation automatically implies criminalization. The reality is more nuanced. While unauthorized financial operations involving stablecoins may result in penalties, the assets themselves are not inherently illegal.

China’s regulatory stance focuses on maintaining financial stability rather than outlawing specific digital assets.

Read Also: Stablecoins Hit $303B Cap: Global Adoption

The Role of Stablecoin Regulation in China

China’s central bank, along with other regulatory agencies, aims to curb activities that disrupt monetary control. Stablecoins, because of their pegged value and ease of transfer, have the potential to become unofficial alternatives to sovereign currency.

This risk is especially significant in areas such as:

• Cross-border payments
• OTC markets
• Crypto-to-fiat arbitrage
• Informal settlement systems

By defining stablecoins as virtual currency, the authorities create a framework that places related activities under regulated boundaries. Institutions providing stablecoin settlement, trading, or intermediary services must operate within the law.

Regulation ensures that stablecoins cannot bypass capital controls or create parallel payment networks outside the central bank’s authority.

Why Regulators Are Tightening the Rules

China’s stablecoin ecosystem was historically tied to offshore markets where stablecoins flowed through grey channels into domestic circulation. Authorities view this as a risk for several reasons.

Currency Substitution

Stablecoins pegged to the dollar can shift demand away from the yuan. If widely used in domestic transactions, they could undermine monetary policy.

Cross-Border Arbitrage

Traders often use stablecoins to move capital across borders more freely than is allowed by official channels. Regulators aim to stop this practice before it becomes widespread.

Illegal Financial Activity

Fraud, underground banking, and money laundering schemes often rely on stablecoin liquidity to operate. Strengthening regulation makes these activities more difficult.

Market Stability

Unregulated stablecoin circulation can amplify volatility and create systemic risks in an economy the size of China’s.

The tightening of rules is therefore not targeted at stablecoins as assets but at the activities surrounding them.

What Experts Predict for the Stablecoin Ecosystem

Experts believe the space for stablecoin development in China will continue to narrow. New rules push institutions, platforms, and intermediaries to comply with tighter standards, reducing the availability of unregulated channels.

This shrinking space may affect:

• OTC trading volumes
• Offshore liquidity access
• Cross-border flows
• Crypto on-off ramps

However, the long-term direction could still involve innovation within regulatory boundaries. Stablecoins that comply with requirements or operate in controlled pilot scenarios may still play a role in digital finance.

Regulators are increasingly supporting formal digital currency solutions, particularly the digital yuan, which reduces the need for private stablecoins in domestic markets.

The Impact on Investors and Businesses

For investors, the primary change lies in fewer accessible pathways for stablecoin usage. Activities once considered routine, such as using offshore stablecoins for trading, may now involve legal risk if tied to unlicensed operations.

Businesses that rely on stablecoin settlement may also face stricter compliance requirements. Companies interacting with stablecoins must navigate more complex reporting, risk controls, and legal scrutiny.

This environment pushes both individuals and institutions toward regulated digital currency alternatives. As a result, the digital yuan is expected to absorb many use cases previously dominated by stablecoins.

Stablecoins in the Context of Global Regulation

China’s stance on stablecoins mirrors global trends. Many jurisdictions now categorize stablecoins as digital financial assets requiring regulatory oversight.

International bodies, including the Financial Stability Board and the Bank for International Settlements, have expressed concerns about unregulated stablecoin flows. Common issues include:

• Financial crime risk
• Monetary sovereignty concerns
• Lack of transparency
• Reserve quality questions

China's approach reflects similar motivations, though implemented in a more structured and comprehensive way.

Final Thoughts

Stablecoins are not prohibited items under Chinese criminal law, despite increasing regulatory scrutiny. Instead, they are treated as virtual currencies that require strict governance. The central bank’s classification aims to block risks associated with currency substitution, cross-border capital flow, and underground financial activity.

The stablecoin environment in China will likely continue shrinking as enforcement intensifies. For traders, businesses, and individuals, understanding these regulatory boundaries is essential to avoid legal exposure and adapt to the evolving digital finance landscape.

Read Also: How To Buy Stablecoins On Bitrue

FAQs

Are stablecoins illegal in China?

No. Stablecoins are not illegal but are considered virtual currencies subject to strict regulation.

Why are stablecoins regulated in China?

Regulators aim to prevent currency substitution, cross-border arbitrage, and illegal financial activity.

Are stablecoins treated as contraband?

No. Experts confirm they are not classified as prohibited items under criminal law.

What activities involving stablecoins are restricted?

Trading, clearing, settlement, and intermediary services require compliance with financial laws.

Will stablecoin usage shrink in China?

Yes. Experts believe the ecosystem will continue narrowing as regulatory pressure increases.