Stablecoins and Their Potential Impact on the Financial System

Stablecoins are a type of cryptocurrency that is pegged to a specific asset (usually fiat currency), serving as a bridge between traditional finance and decentralized finance ( DeFi ), and is also an important infrastructure for DeFi. Recently, the United States and Hong Kong have successively passed stablecoin regulatory bills, marking the formal establishment of stablecoin regulatory frameworks in major regions around the world. This brings opportunities for the development of DeFi, while also potentially deepening its integration with the traditional financial system, posing new challenges and risks to the global financial system.

Regulatory framework gradually established

The latest stablecoin legislation passed in the United States and Hong Kong establishes a series of regulations targeting industry risk points, mainly including:

1. Requirement of 100% reserve assets, including cash, demand deposits, short-term government bonds, etc.

2. Issuers must obtain regulatory licenses and establish minimum capital requirements.

3. Incorporate into the anti-money laundering regulatory framework, set customer identity verification requirements.

4. Ensure that users can redeem at face value, with customer funds prioritized for repayment in case of bankruptcy.

5. Clearly prohibit stablecoin interest payments.

These regulations refer to the supervision of traditional financial institutions, but are stricter in liquidity management. Regulation positions stablecoins as "on-chain cash" rather than "on-chain deposits," in order to strengthen the foundation of DeFi.

Potential Impact on the Financial System

1. More efficient means of international payment

The remittance fee rate for stablecoins is less than 1%, and the time is within a few minutes, which is significantly better than traditional cross-border payments. However, with the standardization of regulations, compliance costs may rise. In the long term, the share of stablecoins in international payments is expected to increase.

2. The disintermediation impact on bank deposits

Converting deposits into stablecoins may lead to an outflow of bank deposits. Currently, the scale of stablecoins only accounts for 1% of bank deposits in the United States, so the impact is limited. However, there are two long-term risks: first, the development speed may exceed expectations, and second, investment returns may be obtained through indirect means.

3. Absorb government debt

The scale of US Treasury bonds held by stablecoin issuers has reached 120 billion USD, ranking 19th among the economies that hold US Treasury bonds overseas. As the market value of stablecoins rises, the demand for short-term US Treasury bonds may increase.

4. The impact on the transmission of monetary policy

Stablecoin issuers buying US Treasury bonds to lower short-term interest rates, requiring the central bank to withdraw currency for hedging. In the long term, this may lead to financial disintermediation and weaken the effectiveness of monetary policy.

5. The price volatility of crypto assets is transmitted to the financial markets.

Influence the financial markets through channels such as currency creation, market sentiment, and related stocks.

6. Reshaping the International Monetary Order

Stablecoins could both strengthen the dominance of the dollar and serve as a bridge to a more diversified new order. They form competition for the currencies of emerging economies.

7. Insights on Currency Internationalization

It helps to enhance the influence of non-US dollar currencies such as the Hong Kong dollar in cross-border payments and crypto assets, but it is necessary to continuously monitor financial stability risks.

The development of stablecoins brings new opportunities and challenges to the financial system. The establishment of a regulatory framework helps to standardize industry development, but continuous attention is still needed on potential risks, and relevant policies should be optimized in a timely manner.