John Greenwood Advises Against Stablecoins, Citing Instability and Illicit Use

Executive Summary

John Greenwood, architect of Hong Kong's linked exchange rate, publicly advised against stablecoins, citing instability and illicit use, suggesting instead an enhancement of traditional banking transaction speeds.

The Event in Detail

John Greenwood, widely recognized as the 'Father of the Linked Exchange Rate,' recently issued a public advisory against stablecoins during a press conference in Hong Kong, as reported by Lianhe Zaobao. Greenwood characterized stablecoins as a risky intermediary between fiat currency and volatile crypto assets, frequently employed for 'nefarious' purposes. He further asserted that stablecoins lack practical utility, offer no interest to holders, and are excluded from central bank facilities. His recommendation emphasized improving the speed of transactions within the existing banking system over the development of stablecoins.

Market Implications

The Bank for International Settlements (BIS) has echoed concerns regarding stablecoins, stating they fail the three primary tests of money. The BIS highlighted that stablecoins are not backed by central banks, possess insufficient safeguards against illicit activities, and lack the funding flexibility necessary for loan generation. The report noted that stablecoins have been a 'go-to choice for illicit use,' bypassing traditional finance's 'know-your-customer' controls. Hyun Song Shin, head of the BIS monetary and economic department, warned of the risk of rapid investor withdrawals.

Despite these criticisms, the stablecoin market has experienced substantial growth, doubling to $250 billion by July 2025 and projected to surpass $400 billion by the end of 2025. Concurrently, some fintech firms are working to integrate stablecoins within traditional financial operations. Velocity, for instance, raised US$10 million for a stablecoin infrastructure platform aimed at large enterprises, with CEO Tom Greenwood emphasizing leveraging stablecoins to 'remove friction, accelerate settlement, and drive improved performance in real-world financial operations.' However, major Chinese technology companies, including Ant Group and JD.com, have reportedly suspended their plans to issue stablecoins in Hong Kong.

Expert Commentary

John Greenwood's stance is rooted in his assessment that stablecoins provide a 'risky bridge' from fiat to volatile crypto assets. He explicitly stated, 'My advice has been to stay away from stablecoins,' and suggested, 'It would be much better, in my opinion, to focus on speeding up transactions in the banking system.' His critique includes their inability to offer interest and lack of central bank access.

The BIS report elaborated that stablecoins' poor performance on the three tests of money—not being backed by central banks, inadequate illicit usage safeguards, and insufficient funding flexibility—suggests they 'may at best serve a subsidiary role.' The report specifically pointed out the lack of 'know-your-customer' controls as a factor contributing to their illicit use.

Broader Context

Comparatively, DeFi-based international payments, primarily using stablecoins like USDC and DAI, achieve an average finalization time of 3.6 seconds, with a median transaction cost of $0.06 on Layer-2 networks. This contrasts with traditional international wire transfers, which average 28 hours for settlement and an estimated cost of $9.40 per processing, with an average fee of $14.7 for cross-border transfers projected for 2025. DeFi protocols demonstrate a 5.4x faster average settlement time than SWIFT-based systems. Traditional financial institutions are also exploring blockchain; JPMorgan's Kinexys platform and JPM Coin have processed over $1.5 trillion in notional value, indicating a recognition of blockchain's potential within established finance.

The public statements from influential figures like John Greenwood and institutional warnings from the BIS contribute to an uncertain regulatory outlook for stablecoins, particularly in regions like Hong Kong which are actively assessing their digital asset strategies. This scrutiny may lead to stricter frameworks or a prioritization of traditional financial innovations over crypto-native solutions, potentially impacting stablecoin integration into mainstream finance.