Recently, the United States and Hong Kong in China have successively enacted legislation on stablecoins, establishing regulatory frameworks that mark a milestone in the development of stablecoins and crypto-assets. Both countries' regulatory stances have shifted from caution and restriction to recognition and acceptance, positioning stablecoins as a crucial part of digital financial infrastructure with broad market potential. At the same time, Circle, the issuer of USDC, the world's second-largest U.S. dollar-pegged stablecoin, will be listed on the New York Stock Exchange on June 5, marking the first IPO in the stablecoin sector. These regulatory shifts and capital market acceptance indicate that the stablecoin-driven crypto industry, which has evolved largely through self-driven growth over the past decade, is entering a new phase.

Much attention is focused on the impact of the U.S. GENIUS Act on the dollar. Researchers at ANBOUND suggest that under macroeconomic pressure, the Act represents not only an effort to promote domestic financial innovation but also a deep restructuring of U.S. monetary and fiscal strategies. Stablecoin regulation is not just a matter of digital asset market governance; it is also a strategic tool for maintaining dollar system stability, supporting U.S. Treasury liquidity, and reinforcing U.S. dominance in the global monetary order. The U.S. government is seizing the opportunity to adjust its own monetary and fiscal policies in light of the rise of stablecoins. ANBOUND researchers emphasize that the growth of stablecoins reflects a broader digital reconfiguration of the financial system. Therefore, beyond focusing on dollar versus non-dollar competition in the digital realm, it would be more crucial to consider the systemic impacts and challenges to the entire financial architecture.

Due to their linkage to fiat currencies or real-world assets, stablecoins are regarded as a bridge between digital and traditional finance. As an improved iteration of blockchain-based crypto-assets, stablecoins are seen as having significant potential in cross-border payments and settlements due to their reliability and decentralized nature.

As of now, the transaction volume of fiat-pegged stablecoins has surpassed that of traditional credit card giants like Visa and Mastercard. In the future, their low-cost and decentralized characteristics will pose a serious challenge to the existing centralized cross-border payment and settlement systems, such as the "SWIFT + clearinghouse" model. While this trend currently favors the dollar's expansion in the digital space, it also opens up opportunities for non-dollar currencies. Although the U.S. dollar may retain dominance in digital payments, the decentralized nature of stablecoin transactions provides other currencies with a cheaper, more transparent, and less politically influenced transactional framework. This will intensify global competition in international payments and settlements.

This means that the long-term dynamics of digital "geo-currencies" will still depend more on geopolitical influence than on stablecoins themselves. Although U.S. dollar-pegged stablecoins currently dominate, true "digital dollar hegemony" lies not in the quantity of stablecoins issued, but in control over the underlying digital technology. Crucially, while dollar-pegged stablecoins may boost demand for short-term U.S. Treasuries, instability in the dollar's value could trigger mass redemptions of these stablecoins, leading to corresponding selloffs in U.S. Treasury holdings and posing new risks to the U.S. bond market. Should dollar confidence weaken over time, stablecoins may face a "Bretton Woods collapse" moment of their own. Hence, while stablecoins might benefit U.S. debt demand in the short term, that advantage is unlikely to last amid shifting global trade and financial landscapes.

Furthermore, stablecoins pose a more immediate threat to commercial banks. A senior researcher at ANBOUND noted that blockchain-based, 24/7 peer-to-peer settlement bypasses traditional banking systems, significantly lowering transaction costs, particularly for cross-border payments. Similar to how Alipay challenged China's banking sector, stablecoins could disrupt banks' intermediary functions like payments and settlements. Unless commercial banks accelerate blockchain adoption and transformation, they risk being reduced to basic lending intermediaries or being phased out entirely. Even though current U.S. regulations prohibit stablecoin issuers from lending or offering yield, so as to distinguish them from banks, their growing issuance could still lead to deposit outflows from traditional banks. Furthermore, the regulatory framework does not prevent institutions from engaging in transactions with stablecoin issuers, allowing these issuers to use strategies like repos and ABS issuance to gain leverage. Under such development, the dollar-pegged stablecoin issuers are evolving into "digital banks" that compete with traditional banks in lending and borrowing, potentially rendering the old banking model obsolete.

The rapid development of stablecoins also challenges monetary policy and financial regulation. Currently, U.S. dollar-pegged stablecoins are backed by cash, liquid deposits, and short-term Treasury securities, and do not directly affect money issuance. However, the accumulation of reserve assets associated with stablecoin issuance lowers the money multiplier and could lead to a collapse in total money supply, affecting circulation channels. As demand for stablecoins grows and reserve assets are increasingly locked up, central banks may need to issue more currency to maintain liquidity. While such an act does not reflect true monetary expansion, it could mislead markets and complicate monetary policy decisions. Moreover, the use of Treasuries to back stablecoins may not expand the money supply in the short term, but it does signal a growing fiscal influence over digital monetary sovereignty. Theoretically, the Treasury could bypass the central bank and issue targeted bonds to stablecoin issuers, effectively merging fiscal and monetary policy in the digital space. Stablecoin transactions also exist outside the current monetary circulation system, forming a "black box" from the central bank's perspective, making them hard to monitor or assess. This challenges the independence of monetary policy and impacts sovereign currency systems.

From a regulatory standpoint, the inherent contradiction between centralized regulation and decentralized stablecoins remains unresolved. The GENIUS Act seeks to regulate stablecoin issuers similarly to financial institutions. Yet, current anti-money laundering (AML) and KYC measures do not fully accommodate the nature of stablecoin issuance and trading. Furthermore, centralized regulatory approaches contradict stablecoins' decentralized essence. Regulators may either need to develop decentralized oversight models or require issuers to bear high compliance costs and forgo decentralization. However, if stablecoins lose their decentralized identity, their business model may lose appeal. Does stablecoin decentralization also mean removing the Federal Reserve from the loop? Researchers at ANBOUND believe that this is not necessarily so, as reserve anchoring still ties stablecoins to centralized dollar-clearing and asset custody systems. This means that despite decentralized trading at the user level, stablecoins still face centralized oversight at the foundational layer. A balance, possibly involving technical innovation or mutual compromise, between decentralization and regulation must be struck, though risks and tensions will likely persist.

As things stand, stablecoins themselves also face major internal challenges regarding their ability to remain "stable". This includes issues of security, data privacy, reserve transparency, and the risk of de-pegging from anchor currencies. Notably, their stability is inherently linked to the stability of the broader financial system. For example, the collapse of Silicon Valley Bank affected Circle's reserve assets, leading to significant losses. Thus, despite their vast digital potential and competitive advantages, stablecoins cannot exist independently of the traditional financial system.

For China, as global acceptance of crypto-assets rises and stablecoins play an increasingly influential role in finance, there is a growing need to update digital asset policy and fintech development strategies. According to ANBOUND researchers, China needs to adopt a tiered regulatory approach: maintain a cautious stance on first-generation cryptocurrencies like Bitcoin and Ethereum due to their speculative nature, while taking a more flexible and pragmatic approach toward newer, more widely applicable assets like stablecoins. A regulatory sandbox model like Hong Kong's could be useful to facilitate experimentation and advancement. Otherwise, the country risks falling further behind in blockchain application and losing global financial competitiveness.

Though stablecoins may challenge capital flow control in China, they also reflect a larger fintech trend that boosts financial efficiency. Policymakers should utilize new technologies to accelerate capital account liberalization, promote RMB internationalization, and adapt to the broader trend of China's outbound investment. Otherwise, the country risks missing out on the digital finance race and becoming increasingly isolated by digital barriers in the global financial system.

Final analysis conclusion:

The establishment of stablecoin regulatory frameworks in the U.S. and Hong Kong marks a shift from restriction to acceptance, greatly expanding room for growth in stablecoins and crypto-assets. However, these advancements in financial technology also pose significant challenges to existing financial systems and regulations. In the case of China, it should adopt a differentiated regulatory strategy to avoid falling behind in the digital currency competition.

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Wei Hongxu is a Senior Economist of China Macro-Economy Research Center at ANBOUND, an independent think tank.