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Author: Peng Wensheng, Source: CICC Research Report
Recently, the dynamics in the digital currency field, especially the development of the US dollar stablecoin, have attracted attention.Since returning to the White House, the Trump administration has made many statements on digital currencies, including the development of stablecoins pegged to the US dollar, opposing the Fed’s issuance of central bank digital currencies, and advocating the inclusion of crypto assets such as Bitcoin into reserve assets.Recently, US Treasury Secretary Bescent said at the White House’s first digital asset summit that the United States “will maintain the US dollar as the world’s dominant reserve currency” and “will use stablecoins to achieve this goal.”
Other countries and regions around the world have also responded.European Central Bank Governor Lagarde recently emphasized at a hearing that a rapid establishment of a legislative framework will pave the way for possible digital euros (central bank digital currencies) to deal with the challenges brought about by the rapid development of stablecoins and crypto assets, but interestingly, she did not propose to deal with the euro stablecoin.Hong Kong, China, passed the “Stablecoin Bill”, which allows licensed institutions to issue stablecoins pegged with fiat currencies and sets relevant regulatory requirements.
Stablecoins are not only a hot topic of global concern, but also an economic event that is happening in reality, which may have an important impact on the global economic and financial landscape.This article tries to make some analysis on how to understand the economic logic of stablecoins and the meaning of public policy.
1. What is a stablecoin?Not what?
Stablecoins are a type of cryptocurrency that is pegged to specific assets and aims to maintain a relatively stable currency value.Currently, the market value of US dollar stablecoins (such as USDT, USDC) collateralized with high liquidity assets accounts for more than 90% of the total market value of all stablecoins. The stablecoins discussed in this article only refer to such US dollar stablecoins.The transactions of stablecoins can be divided into primary and secondary markets. In the primary market, stablecoin issuing institutions usually promise to repay USD 1 with one stablecoin, but there is a high participation threshold. Generally, only institutional users can participate. At the same time, they must meet the requirements of customer identity review (KYC) and there is also a processing delay in redemption.The secondary market is independently traded by market participants, and the price of stablecoins is affected by supply and demand, and sometimes deviates from the anchor price of 1 USD.Stablecoins have both technical and currency characteristics, and there are several points worth paying attention to.
(I) Digital technology improves payment and settlement efficiency, but does not decentralize
In theory, stablecoins run on the distributed ledger of blockchain and have decentralized attributes.At the same time, stablecoins can be embedded in smart contracts to support lending, trading and other applications in decentralized finance (DeFi), and can be automatically executed without traditional financial intermediaries, achieving fast and low-cost settlement.But in reality, there are certain restrictions on the decentralization characteristics of stablecoins. For example, the issuing companies of USDT and USDC have control over the issuance and redemption of stablecoins and the management of reserve funds, which instead present certain centralized characteristics.
(II) From the perspective of holders, stablecoins are private currency, not government currency
According to the GENIUS Act (draft) proposed by the United States in 2025, stablecoin issuers are prohibited from paying any form of interest to coin holders.At the same time, the bill requires stablecoin issuers to hold no less than 1:1 high-liquidity assets as reserves.From the perspective of monetary attributes, stablecoins are essentially a private currency based on US dollar credit and issuing agency credit.
(III) From the perspective of the issuer, the stablecoin model is similar to the “narrow bank” and is not only a liability
The operation of stablecoins is similar to the narrow banking model.Traditional banks adopt the “short-term debt and long-term investment” model, that is, use short-term deposits to issue long-term loans. Maturity mismatch may trigger liquidity crises, such as bank panics and bank runs that have occurred many times in history.The modern central bank system improves financial stability through multi-level regulatory system design, including various liquidity tools, deposit insurance systems, capital liquidity requirements, macro-prudential policies, etc.In contrast, stablecoins are similar to the concept of a narrow bank, with the core of which is to strictly limit the scope of business and only allow holding low-risk, high-liquid assets, such as cash and short-term treasury bonds.By maintaining sufficient or even excess assets, maintaining their exchange guarantees for deposits and avoiding crises caused by term mismatch, credit risks or excessive speculation.Under this model, the functions of currency creation and credit isolation are separated: in some theoretical concepts represented by the “Chicago Plan”, banks in narrow sense are only used as “money warehouses” and are responsible for safely custodying deposits and providing payment services; while credit issuance such as corporate loans is completed by other non-bank financial institutions (such as professional lending institutions), and the two are strictly isolated legally and financially.
(IV) The RMB already has stable coins: WeChat Pay and Alipay
From the perspective of economic mechanism, platform currencies of third-party payment tools have similar functions as stablecoins, while China has certain comparative advantages in this regard and has formed a relatively complete regulatory structure.China’s digital payment industry represented by WeChat Pay and Alipay is in a leading position in the world. “WeChat Change” and “Alipay Balance” are users’ claims to payment institutions, supporting real-time account recharge and withdrawal to cards, and can be conveniently used in various consumption, transfer and financial scenarios.Under the centralized deposit and custody system of customer reserve funds, the funds must be deposited 100% to the People’s Bank of China (the “non-financial institution deposit” that constitutes the balance sheet of the central bank), so as to restrict the use of funds of payment institutions and fully guarantee the safety of users’ assets.It can be seen that similar to overseas stablecoins, platform currency is also an extension of legal currency. It uses a mechanism to maintain a 1:1 ratio between digital currency symbols and legal currency. The difference is that the stability mechanism of platform currency is stricter, and the security of customer reserve funds is actually guaranteed by the central bank’s base currency. At the same time, standardized supervision has made its financial expansion attributes more strictly restricted.
2. As a payment tool, what costs can stablecoins be reduced and what costs cannot be reduced?
At present, the number of users of stablecoins in regular retail payments is very small, and the application scenarios are limited.Third-party payment platforms such as WeChat, Alipay, Apple Pay, PayPal have formed network effects and economies of scale, and have the first-mover advantage of incumbents.In the same currency zone, stablecoins are not more advantageous than the existing third-party payment system in terms of the convenience and security of payment.The potential of stablecoins to reduce transaction costs lies mainly in cross-border payments.
What factors make stablecoins have low cost advantages in cross-border payments?A relatively sufficient market competition pattern may be an important reason.The traditional banking system provides cross-border exchange and payment services for US dollar, but the clearing system is highly centralized. The New York Clearing House Interbank Payment System (CHIPS) is one of the core infrastructures of the US dollar cross-border payment and clearing system, and undertakes about 96% of the world’s cross-border payments.Bank card transfer clearing institutions are dominated by a few oligarchs such as Visa and MasterCard. First-mover advantage and scale effects lead to high entry barriers and industry concentration, which in turn drives up transaction costs.
Third-party digital payment platforms have the characteristics of lower transaction costs between private persons than traditional cross-border payment systems and more transparent fees.These payment platforms usually combine digital wallet functions, and the diverse user needs force suppliers to iteratively upgrade payment services, forming differentiated competition in different regions and usage scenarios.Many third-party payment platforms have formed their highlights in their segments, such as Stripe provides lower cross-border fee services and customizable business solutions, and its main service targets are online companies with large transaction volumes or international transaction needs, but from the merchant level (payment party), third-party payment transaction fees are still high.
The degree of openness and infrastructure architecture of stablecoins make it more likely to form a more competitive market structure, and bypass existing payment systems to achieve low-cost cross-border payments.First of all, the digital economy characteristics of stablecoins make it possible to use new technologies to reduce fees. For example, the competition and optimization of stablecoins’ public chains helps to drive the decline in transaction fees (gas fees).Secondly, the competition in the stablecoin market is relatively sufficient, and multiple existing or potential issuers compete together around the world, which is conducive to maintaining transaction fees at a low level.Third, compared with the banking system and third-party digital payment platforms, stablecoins face loose regulatory regulatory easing and there is a certain regulatory arbitrage space.In contrast, the regulatory system for existing payment methods has been relatively complete. Banks face strict constraints in terms of capital adequacy ratio, deposit insurance, liquidity management, anti-money laundering (AML), KYC, etc., and third-party digital payment platforms have clear regulations on payment licenses, fund custody, anti-money laundering, cross-border settlement, etc.In contrast, stablecoins are highly anonymous and can usually bypass traditional bank cross-border settlement systems without the need to accept strict foreign exchange or capital flow controls.
It is worth mentioning that stablecoins can reduce the cost of cross-border payments of the same currency, but for payments involving exchanges between different currencies, the situation is more complicated. Stablecoins cannot eliminate the exchange costs between two currencies, which involves local banking systems, and regulatory requirements such as anti-money laundering and capital account controls increase transaction costs.Of course, as a party to trade currencies, the US dollar has the advantage of economies of scale, and the exchange between other currencies is generally carried out through the US dollar.This cost advantage comes from the US dollar’s status as an international transaction medium. As for digital technology itself, US dollar stablecoins do not necessarily have competitive advantages over third-party payment tools or central bank digital currencies in other currencies.One important meaning is that stablecoins in other currencies have much more limited roles in reducing the cost of cross-border economic activities than stablecoins in the U.S. dollar.
3. Stable coins supply elasticity is large, and their circulation is mainly determined by demand.
From the perspective of stablecoins supply, the income of the issuer comes from the interest rate spread on the asset and liabilities side.Stablecoin issuing institutions pay zero interest on the liability side, while safe assets such as treasury bonds and bank deposits held on the asset side generate interest.The larger the net interest margin (interest spread minus operating expenses), the stronger the issuing agency’s motivation to provide stablecoins. In theory, as long as the net interest margin is positive, the supply may be infinite.The market value of the US dollar stablecoin increased from billions in 2020 to exceed US$220 billion in the first quarter of 2025, accounting for 99.8% of the total number of fiat-anchored stablecoins.And in these years, the short-term interest rate of the US dollar has increased from near zero during the COVID-19 pandemic to around 4% now, bringing a large interest rate spread of almost risk-free for stablecoin issuers.This may explain why more and more institutions are willing to issue stablecoins.
Based on the characteristics of high supply elasticity, the circulation of stablecoins is basically determined by demand.As a payment tool that does not pay interest, no one is willing to hold zero-interest assets that significantly exceed transaction requirements.Due to uncertainty in transaction demand, people are willing to hold some reserve fund, and the reserve fund demand depends in part on the opportunity cost of interest loss.When the yield of bank deposits or other secure assets (such as Treasury bonds) rises, the opportunity cost of holders increases, resulting in a decrease in reserve fund demand.That is to say, rising USD interest rates in recent years should reduce demand for stablecoins.So how do you explain the rapid growth of US dollar stablecoins during the same period?
From another perspective, the interest given by stablecoin holders is the price they pay to obtain the convenience given by stablecoin. Higher interest rates lead to lower stablecoin balances, but the convenience benefits brought by unit stablecoin to holders increase.So what kind of convenience benefits can offset the opportunity costs caused by a sharp rise in interest rates?
The first one may be the currency substitution effect.The US dollar provides liquidity/safe assets as a reincarnated international currency, especially for economies with high inflation or the continued depreciation of the local currency. The US dollar has the effect of replacing the local currency.A survey found that the willingness of developing countries such as Turkey, Argentina, Indonesia, and India to hold stablecoins has increased. Taking Turkey, which has high inflation as an example, the scale of using fiat currency to purchase stablecoins in 2023 is equivalent to 3.7% of GDP.However, this kind of currency substitution should be limited. From the perspective of stored value, especially considering the rising US dollar interest rate, the replacement of the local currency should be more reflected in safe assets that pay interest, such as the US dollar deposits of local banks.Another possible alternative to dollar cash is the dollar stablecoin, but there is no evidence of the importance of this option.In contrast, neither US dollar cash nor stablecoins pay interest. Stablecoins have the convenience of carrying, and there is no risk of physical damage. It is especially advantageous in large-scale payments, but the advantage of US dollar cash is that there is no risk of redemption.
The second may be in the field of traditional cross-border trade payments.Traditional cross-border payments have long been trapped by high costs and low efficiency, mainly due to factors such as monopoly caused by highly centralized infrastructure, complex and lengthy processes, and layered transfer of compliance costs.In this context, stablecoins provide an alternative to bypass or simplify traditional hierarchical structures, and use digital means to achieve more direct cross-border payments, thereby breaking the existing pattern and reducing transaction fees.For cross-border e-commerce sellers, businesses or individuals who frequently engage in small cross-border trade, this cost reduction is extremely attractive and may therefore bring about demand for stablecoins.However, reducing the cost of cross-border payments is not the “patent” of stablecoins. Digital payment platforms such as PayPal also have the potential to break the traditional cross-border payment monopoly.
The third may be related to crypto asset transactions. The prices of crypto assets such as Bitcoin have risen sharply in the past few years and have high volatility, increasing the demand for reserve funds for US dollar stablecoins for crypto asset transactions.Stablecoins are not only the main intermediary for crypto asset trading, but also an ideal safe haven for periods of price fluctuations in major crypto assets such as Bitcoin.Regardless of whether the Bitcoin market is upward or downward, the existence of derivatives such as futures contracts and perpetual contracts has led to the continued increase in the market’s demand for stablecoins as collateral.
The fourth may be underground economic activities, regulatory arbitrage, and avoiding transaction needs related to financial sanctions.The anonymity of stablecoins during the transaction process makes transactions difficult to track and regulate, providing convenience for illegal and illegal transactions, especially in cross-border payments, which can be used to bypass capital account control and also increase the difficulty of tax collection and management and anti-money laundering.The return obtained by evading regulation can be said to be the convenient income provided by stablecoins to their holders, thus bringing demand for stablecoins.Stablecoins can also be used to bypass the international payment system dominated by the United States today, thereby avoiding financial sanctions in geoeconomic competition.For example, Russia has turned to using stablecoins to promote oil trade with other countries, using USDT as a bridge for local currency trade settlement, and countries such as Iran, Venezuela have also used cryptocurrencies to conduct trade settlement.
The above four possibilities, so far, are more reasonable guesses and have some correlation.The demand for crypto asset trading and gray trading is strengthened by the weak regulatory environment in which offshore exchanges are located. Most crypto exchanges are set up in offshore financial centers, making it difficult to implement regulatory law enforcement and international regulatory cooperation.
4. Future development potential: the ability and inability of stablecoins
How do you view the growth potential of stablecoins in the future?Similar to cash, bank demand deposits, third-party payment reserves, etc., the circulation of stablecoins is mainly determined by transaction needs, bringing an important meaning.In the case where cross-border situations are not involved, stablecoins have no obvious advantages over cash, demand deposits, and third-party payment systems.While anonymity makes it easier for stablecoins to conduct underground economic activities, it may in turn promote underground economic activities. Such a positive cycle may facilitate a shadow financial system with gray transactions, and it is hard to imagine that monetary authorities will continue to tolerate such regulatory arbitrage.The growth potential of stablecoins lies in cross-border economic activity.
(I) The growth potential of the US dollar stablecoin is first due to the international currency status of the US dollar
At the international level, the network advantages of incumbents make the US dollar most likely to benefit from the market mechanism of stablecoins.In other words, the rapid growth of the US dollar stablecoin is first of all the result of the US dollar as an international currency. Conversely, can the stablecoin consolidate or even expand the role of the US dollar?This depends on the performance of stablecoins in the three major functions of currency (accounting units, trading media, and store of value). Currency substitution phenomenon may occur in these three functions. Which function is more important?
The credit of sovereign currency as an account unit comes from government endorsement and is the core embodiment of national economic sovereignty.The international extension of the bookkeeping currency established by public power or the degree of erosion in its own country is reflected in the market competition of its payment and stored value functions.
As mentioned above, in terms of the efficiency of payment methods, the US dollar stablecoin benefits from the incumbent advantage of the US dollar as an international currency.At the same time, in terms of regulatory arbitrage, the United States has a higher degree of financial liberalization than other countries, and the impact of regulatory arbitrage on the United States is smaller than that of other economies, which also makes the dollar stablecoin more favorable.
So, what comes from the competitiveness of the US dollar as an international currency?The key is the means of storing the value of the currency.The US financial market is large in scale, depth and breadth, and is also the most open among large economies, attracting the participation of global investors, especially US Treasury bonds provide safe assets for global markets.The US dollar stablecoins benefit from the incumbent advantage of the US dollar as an international reserve currency, while the US dollar as a new technical tool provides a new carrier for the expansion of the US dollar as a means of storage value in the global market.
(II) US dollar stablecoins can in turn promote dollarization, but there are two resistances
Globally, the competition between currencies is a zero-sum game, and the US dollar’s gain in the international currency market means the loss of other countries.Based on the above analysis logic, there are mainly two types of countries affected by the US dollar stablecoins: one is developing countries with weak financial systems, small economic scale, large inflation and exchange rate fluctuations, and the other is countries with capital account control.The losses in other countries are mainly in two aspects.First, the loss of seigniorship and related income. The monetary income abandoned by the holders of the US dollar stablecoin is obtained by the stablecoin issuer and the US government. The latter is reflected in the demand for secure assets generated by the stablecoin, which has caused the cost of issuing bonds in the US government.Second, the effectiveness of monetary management has decreased.As a new payment tool, the overall scale of stablecoins is still relatively small, and regulators are still on the stand-by and see.But as the issuance increases, its negative impact appears, and relevant policy authorities in other countries may respond by strengthening regulation to crack down on demand for US dollar stablecoins.
Secondly, stablecoins themselves are also fragile. Although stablecoins are pegged to the US dollar, they are essentially private “currencies” issued by private institutions.Compared with payment methods (including third-party payment tools such as WeChat payment and Alipay), the private-sector-led stablecoins may lack the ability and willingness to invest in security.This involves both technical mechanisms, such as the consensus mechanism of blockchain technology and possible loopholes in smart contracts, as well as economic problems, especially the convertibility of stablecoins.
Although stablecoin issuing institutions hold 100% of liquid assets as a guarantee of exchange, it is difficult to completely avoid the collapse of holders’ confidence in their anchor value.As the development of stablecoins has occurred many times, a large number of users have concentrated redemptions or sold in a short period of time, exceeding the response capabilities of their support mechanisms, and ultimately triggering value de-anchoring (such as decoupling from the US dollar). For example, USDC quickly de-anchored after the bankruptcy of Silicon Valley Bank (SVB) in 2023.In the age of digital and intelligent, information, including fake news, spreads quickly, and any rumors of insufficient reserves of issuers may lead to a panic run, which has a herd effect.
Looking further, stablecoin issuers also have a potential motivation to increase leverage for profit purposes and hold risky assets with low liquidity. This feature makes stablecoin issuers likely to become the “wildcat bank” of the new era.Take Tether as an example. Not all of its reserve assets are cash and cash equivalents with high security and liquidity, including Bitcoin, precious metals with sharp fluctuations in prices, as well as secured loans and other investments that are not completely open and transparent.Some people believe that compared with Circle’s issuance of USDC, which achieved 100% reserve compliance, Tether’s reserve assets do not comply with the provisions of the Stable Coin Guidance and Innovation Act, but these assets are Tether’s main source of profit.
It is worth mentioning that the narrow-sense banking concept, as a financial reform concept, has not been implemented in reality because financial institutions have the function of expansion.Stablecoins are still in their early stages of development and are facing a favorable environment with high interest rate spreads. Looking ahead, if the Federal Reserve cuts interest rates and the yield on US Treasury bonds declines, the spread income of stablecoin issuers will narrow significantly.Profit-seeking motivation may lead to the expansion of narrow banking business, and the increase in asset-side credit risk and maturity mismatch, which in turn aggravates the credit risk of issuing institutions.
5. From crypto assets to reserve assets?
Recently, another topic related to US dollar stablecoins (cryptocurrencies) is that the US government will establish a “Strategic Bitcoin Reserve” and a “U.S. digital asset reserve library” containing digital assets other than Bitcoin [17].There may be many reasons for bullish Bitcoin. More than ten years ago, many people believed that Bitcoin was a digital currency (cryptocurrency), which could replace the US dollar, and was the monetary basis for future decentralized finance.Few people should hold this view now that the new narrative is that Bitcoin is a reserve asset and digital gold, which can support a monetary system centered on fiat currency (USD).Therefore, from cryptocurrencies to crypto assets, the latter, as the former’s reserve assets, forms a closed loop, thereby building a new monetary system in the digital age.
We can analyze this problem from three perspectives.First, the closed loop from cryptocurrency to crypto assets does not exist.Although stablecoins use digital technology, they are in an economic sense private currency pegged to the US dollar, an extension of the US dollar, a debt currency, and have no economic mechanism connection with crypto assets such as Bitcoin.
Second, the currency form of the modern economy has long changed from a physical currency represented by gold to a credit/debt currency, which also applies to today’s “digital gold”.The core feature of a credit currency is that its value depends on the credit of the issuer (usually the government or the central bank), so the currency is closely related to “debt”.The modern economy relies on “credit payment” (such as corporate credit sales, loan consumption, and bond transactions), and requires the currency to be transferable and deferred payment ability. Debt currency naturally adapts to this demand through “debtor-debtor relationship”.For example, bank deposits are essentially “debt claims against banks”, and stablecoins are claims against their issuers and can be transferred to third parties at any time.
Keynes called the gold standard “a relic of the barbaric era” and criticized the conflict between its rigid rules and modern economic needs.The gold standard binds money as an accessory to gold, and the money supply is directly linked to gold reserves, resulting in a lack of adaptability to the economic cycle, which ultimately intensifies economic fluctuations and even becomes the fuse for social inequality.Keynes’s monetary view promoted the shift of monetary policy in the 20th century from “gold standard constraint” to “national credit dominance”, and also provided a theoretical basis for the “counter-cyclical adjustment” of modern central banks (such as interest rate cuts and quantitative easing).
The ultimate endorsement of credit currency is national credit.As for the US dollar, a key manifestation is that the base currency is the liability of the Federal Reserve, and the asset side corresponds to the US Treasury bonds it holds.The credit of bank currency (broad currency, or bank deposits) comes from government guarantees and supervision, including the central bank’s lender of last resort, the deposit insurance mechanism, and even comprehensive guarantees in times of crisis, which is an extension of government debt.The assets corresponding to the US dollar stablecoins are U.S. Treasury bonds and other high-level liquid assets, supported by government credit, but there is no regulatory and guarantee mechanism to guarantee exchange like bank currencies.Extending to the international level, as the world’s main reserve currency, the US dollar is based on the national credit of the United States, including the largest economy and the largest financial market.
Third, there may be another possibility that the government will increase its credit by holding assets with value-added potential.For a small economy, due to its limited scope of endogenous assets and insufficient long-term appreciation potential, there is a certain rationality for holding exogenous assets, such as the sovereign fund model in Norway and Singapore, or the credit-enhancing of the foreign value of the central banks of emerging markets and developing countries that hold US dollar assets as their local currencies.However, it is hard to imagine that a large economy, especially an economy that provides reserve currencies for the world, can be effectively supported by exogenous asset value.
From a broader perspective, can crypto assets such as Bitcoin be used as strategic government investments in excess of monetary reserve assets?The long-term returns of assets can be divided into two categories: cash flow-driven returns (stocks, bonds) and price fluctuation-driven returns (gold). The former can achieve wealth appreciation through the “compound interest effect”. The level of compound interest depends on economic growth. The latter only comes from price rise and fall caused by changes in market supply and demand. The appreciation depends to a certain extent on the speculative behavior of “buy low and sell high”.
Specifically for the government’s strategic investment in crypto assets such as Bitcoin, one possible reason is that crypto assets such as Bitcoin involve encryption technologies such as blockchain. The government’s support may promote innovation in this field. The spillover effect of innovation may benefit the entire society, that is, enjoy the “compound interest effect” of innovation.Although this positive externality cannot be ruled out, it needs to be balanced with Bitcoin’s negative externality. The uneconomic nature of Bitcoin’s scale means that the increase in demand can only achieve supply and demand balance through price increases, which has a squeeze effect on other investments, especially physical investments.In this sense, the government’s strategic investment in crypto assets such as Bitcoin is not necessarily better than investing in equity and stocks, or investing in basic research, so it is not natural necessity.
6. Policy meaning
Based on the above analysis, there are three policy implications worth discussing.
First, the US dollar stablecoins contain the contradiction between the public product attributes of the payment system and the private profit-seeking motivation, and the impact on macroeconomic and financial stability will force supervision to strengthen.The core of the current development of US dollar stablecoins is to rely on private institutions to issue private “currencies” and allow the latter to rely on interest rate spreads to make profits.This model has a fundamental contradiction with the public product attributes of the payment system (requiring both safety, stability, inclusiveness, etc.).Looking at the history of monetary and financial development, the public goods attributes of bank currencies have been gradually improved under the mechanisms of financial supervision and government guarantees.The key to the success of China’s digital payment models such as WeChat Pay and Alipay is to adhere to the public product attributes of payment channels through effective supervision while adhering to market-oriented operations.Market innovation in the financial field is the first, and the general rule of strengthening supervision should also apply to stablecoins.
Second, from the perspective of international currency competition, the United States benefits the most from the mechanism of stablecoins. As a private currency provided by narrow banks, the US dollar stablecoin benefits from the status of the US dollar’s international reserve currency, including the incumbent advantages of the financial market.The expansion of the dollar stablecoin is an extension of the dollar’s international reserve currency, and its network effects and regulatory arbitrage may in turn help strengthen the dollar’s international status.For other non-US economies, facing the endogenous advantages of incumbent international currencies in market competition, developing local currency stablecoins to fight US dollar stablecoins is not the optimal strategy.This is not only because other countries’ comparative advantage is not in finance, but also the possibility of introducing new complexities and risks, such as impacting the efficiency of currency management and capital account management, which may explain why the ECB emphasizes the development of digital euros (central bank digital currencies) to deal with the dollar stablecoins.
Third, for China, the key to the response is to give full play to the advantages of China’s large scale and large population (wide application scenarios). We should vigorously promote the application of platform digital currencies such as WeChat Pay and Alipay in cross-border payment scenarios. At the same time, we should use the exogenous power of the central bank’s digital currency to support the development of platform currency in cross-border payment services and build a new efficient and low-cost cross-border payment infrastructure (including through cooperation with multilateral central bank digital currencies).The platform currency of third-party payment tools itself has the characteristics of a stablecoin. Compared with the US dollar stablecoin, it has a strong economic attribute and weak financial attribute. Moreover, it has formed a certain network effect under the empowerment of the platform, which is China’s comparative advantage.
Of course, stablecoins represent a new type of payment technology and model, which may have a positive spillover effect that cannot be seen clearly now, and complete denial is not the best choice.How to leverage Hong Kong’s unique advantages as an international financial center and the largest offshore RMB market is worth discussing. Taking Hong Kong as a controlled test field of RMB stablecoins and a regulatory correction field is conducive to balancing the potential of technological innovation and maintaining the multi-dimensional relationship of public goods attributes of payments, financial stability and national monetary sovereignty.
