(Yicai) June 19 -- A growing number of US dollar-backed stablecoins, which are cryptocurrencies pegged to the greenback, have entered the market and other regions are starting to consider developing stablecoins tied to their own currencies. However, there is a real risk that these local currency stablecoins could promote wider use of the greenback globally, a process known as dollarization, the former governor of the People’s Bank of China said.

"Whether these local currency stablecoins can play a role internationally is still uncertain. By contrast, dollar stablecoins are more likely to have a global impact due to the strong support of the dollar system behind them," Zhou Xiaochuan said at the 2025 Lujiazui Forum yesterday.

Most dollar stablecoins are designed to have two main uses, Zhou said. The first is improving the efficiency of transactions and remittances and the second is making it easier for people to buy other assets, including digital and crypto assets.

However, these types of stablecoins may actually deepen dollarization. Already there are varying degrees of dollarization in Central America and some transitioning economies.

"Dollarization has always been a controversial issue, as it may bring about a number of side effects that are not always good for a country’s economy," Zhou said.

Any discussion about the future role of stablecoins needs to seriously take into consideration how they might contribute to dollarization, he said. There needs to be in-depth research on the potential impact of dollarization on the economies of different countries, especially those that have not yet been hit by runaway inflation or have fallen into heavy debt, in order to determine whether dollarization is suitable for them.

"In most cases, dollarization may not be the best option and could actually lead to more problems. Therefore, when exploring the future development of stablecoins, it is essential to weigh up the pros and cons of dollarization," Zhou stated.

Editor: Kim Taylor