Original author: Lin Yingqi, Zhou Jiming, etc., Zhongjin Dianqing
Reprinted by: Oliver, Mars Finance
A milestone in cryptocurrency regulation. The United States recently passed the Stablecoin Act, becoming the first bill in the United States to establish a regulatory framework for stablecoins, filling the regulatory gap in this field. Just two days later, Hong Kong, China also passed a stablecoin bill with similar functions, which will help Hong Kong, China participate in the competition for global digital financial centers and consolidate its position as an international financial center. Stablecoins are a "bridge" between the traditional financial system and the decentralized financial system (Defi). Following the European Union, the United States and Hong Kong, China have both launched regulatory frameworks for stablecoins, becoming an important step for cryptocurrencies to integrate into the mainstream financial system.
From "wild growth" to gradually moving towards standardized development. This stablecoin-related bill mainly targets the risk points that have appeared in the industry before, including opaque reserve assets, liquidity management risks, unstable value of algorithmic stablecoins, money laundering and illegal financial activities, and insufficient consumer protection. The bills all refer to the regulatory framework for traditional financial institutions, but are more stringent in liquidity management. The statutory reserve ratios for banks in the United States, the European Union, and Hong Kong, China are all close to 0%, but the reserve ratio for stablecoin issuers is required to be 100%. We believe that this is mainly due to the fact that there is a relatively mature and strict supervision of banks, and the deposit liquidity is relatively stable; but stablecoins do not pay interest and transactions are more frequent. The positioning of overseas supervision for stablecoins is not "on-chain deposits", but "on-chain cash", thereby laying a solid foundation for the decentralized financial system.
How to understand the impact of stablecoins on the financial system? As of the end of May 2025, the market value of mainstream stablecoins totaled approximately US$230 billion, an increase of more than 40 times compared to the size at the beginning of 2020. The growth rate is relatively fast, but it is still relatively small compared to the mainstream financial system, equivalent to only 1% of US onshore deposits. However, in terms of transaction volume, stablecoins play an obvious role as an important means of payment and infrastructure in the cryptocurrency system. The annual transaction volume of mainstream stablecoins (USDT and USDC) reached US$28 trillion, exceeding the annual transaction volume of credit card organizations Visa and Mastercard[2]. With the inclusion of stablecoins in the financial regulatory framework, decentralized finance is also expected to usher in development opportunities and deepen its integration with the traditional financial system.
A lower-cost and more efficient means of international payment. According to the World Bank, the average global remittance fee is 6.62% as of the third quarter of 2024. The United Nations 2030 Sustainable Development Goals require that this fee be reduced to no more than 3%, and the arrival time will take 1-5 working days. The efficiency of the traditional financial system is mainly affected by the need to go through multiple transit banks in the SWIFT network. In contrast, the transaction cost of using stablecoins for remittances is generally less than 1%, and the time is generally within a few minutes. However, it is worth noting that before the introduction of the bill, stablecoin payments have not yet been included in KYC and anti-money laundering supervision, which also poses a challenge to cross-border capital account controls in emerging markets. Therefore, although the use of stablecoins for cross-border payments is technically more efficient, in fact this difference is to some extent due to regulatory differences. As regulation becomes more standardized, the compliance costs of stablecoins may also increase. Due to the potential impact on the capital accounts and monetary sovereignty of emerging markets, stablecoins are also subject to regulatory restrictions in some countries and regions[3]. In the long run, as the regulatory framework improves, we expect that the market share of stablecoins in international payments is expected to increase[4], although this process is still accompanied by industry development and regulatory improvement.
The full reserve requirement limits the money creation function: In theory, the 100% reserve asset requirement limits the ability of stablecoin issuers to expand credit. The process of converting deposits into stablecoins is actually the transfer of bank deposits rather than creation. Therefore, the issuance of stablecoins does not affect the US dollar money supply in theory, but when funds continue to flow out of deposits, it may lead to bank balance sheet reduction and money supply reduction; the process of converting other currencies into US dollar stablecoins actually produces the effect of currency exchange, but this is reflected in the cross-border or cross-account flow of US dollars and does not affect the total US dollar money supply. In addition, lending platforms that use cryptocurrencies as collateral actually play a credit creation function similar to that of banks, which can increase the scale of "quasi-currency" (i.e. stablecoins) in the decentralized financial system, but do not affect the traditional money supply. Since the application scenarios involved in the crypto asset financial system are mainly concentrated in the payment and investment fields, and lending is mainly based on speculative demand, the scale of crypto asset lending platforms will be about US$37 billion by the end of 2024[5], which is relatively small.
The impact of deposit disintermediation on banks. The impact of stablecoins on the banking system is mainly reflected in the financial disintermediation effect (i.e., disintermediation). The exchange of deposits for stablecoins may lead to deposit outflows, which is similar to the impact of money funds and high-yield bond markets on the banking system. For example, since 2022, about $2.3 trillion of deposits have flowed to money funds in the high-interest rate environment in the United States, becoming one of the triggering factors for the risk event of Silicon Valley Bank. According to statistics from the Federal Deposit Insurance Corporation of the United States, as of the end of 2024, about $6 trillion of the approximately $18 trillion in deposits in banks in the United States were transactional deposits, which were classified by the U.S. Treasury as deposits that are theoretically at risk of loss. However, considering that the development of stablecoins has been included in the government regulatory framework, the impact on the financial system is relatively controllable. At the same time, traditional banks have also made some explorations to adapt to the development trend of stablecoins and respond to the challenges of deposit diversion, such as JPMorgan Chase Bank, Societe Generale, and Standard Chartered Bank.
Taking over government debt and affecting monetary policy transmission. As of the first quarter of 2025, USDT and USDC issuers hold a total of about $120 billion in U.S. Treasury reserves. If they are combined as an "economy", they will rank 19th in the ranking of overseas economies holding U.S. Treasury bonds, between South Korea and Germany. As the market value of stablecoins rises, we expect that the demand for U.S. Treasury bonds as reserve assets may increase. However, stablecoins can mainly take over short-term U.S. Treasury bonds within 3 months. We expect that the absorption capacity of long-term U.S. Treasury bonds is relatively limited, and the interest rate of short-term U.S. Treasury bonds is subject to the monetary policy regulation of the central bank and depends on real economic factors such as inflation and employment. For monetary policy, stablecoin issuers buy U.S. Treasury bonds, lower short-term interest rates, and require the central bank to withdraw currency for hedging; in the long run, the attraction of stablecoins to deposits may lead to a trend of financial disintermediation, and the migration of financing from the traditional financial system to the decentralized financial system may also weaken the effectiveness of the central bank's monetary policy regulation.
The transmission of crypto asset price fluctuations to the financial market. From the perspective of money creation, the lending behavior within the decentralized financial system realizes the creation function of "quasi-currency", especially the purchase of tokenized stock assets through stablecoins will cause funds to flow directly into/out of the stock market; from the perspective of market sentiment, the price of cryptocurrencies fluctuates greatly, affecting stock market expectations. Historically, the Nasdaq index and Bitcoin prices have shown a certain correlation; crypto assets and stablecoin-related targets in the stock market, such as crypto asset exchanges and financial institutions, affect stock prices through changes in fundamentals.
Potential force for the reconstruction of the international monetary order. For the US dollar, the impact of stablecoins is rather "contradictory": on the one hand, since 99% of the current market value of fiat stablecoins is pegged to the US dollar, the development of stablecoins seems to be able to consolidate the dominant position of the US dollar in the global financial system; but on the other hand, the international background of the development of stablecoins and crypto assets is actually based on the rising risk of geopolitical restrictions and weakening fiscal discipline in the financial field under the trend of de-globalization, and the need for some economies to de-dollarize. Therefore, the high degree of stablecoins pegged to the US dollar is not only a reflection of the US dollar's dominance in global finance, but also a "bridge" for the global financial system to move from the dominance of the US dollar to a more diversified new order, which may explain why the rise and popularity of crypto assets in recent years have also been accompanied by the intensification of the trend of de-globalization. In addition, the EU and Hong Kong, China have also opened up space for the issuance of non-US dollar stablecoins, competing for the dominant position of the US dollar in the field of stablecoins. In the long run, whether the status of the US dollar will continue to be strengthened under the guidance of the new regulatory framework, or whether it will be challenged by other currencies and crypto assets themselves, remains to be observed in the development of the industry. For emerging economies, since stablecoins are competitive with local currencies, if local residents and corporate sectors use stablecoins for settlement, the local currency will actually be converted into US dollars, leading to currency depreciation and inflation; therefore, for financial security reasons, many economies have introduced restrictive measures on the use of stablecoins.
Enlightenment for currency internationalization. For the Hong Kong dollar, by regulating the issuance of stablecoins, especially the Hong Kong dollar stablecoin, it will help enhance the influence of the Hong Kong dollar in cross-border payments, crypto assets and other fields, enhance the international competitiveness of Hong Kong's financial industry and the Hong Kong dollar, and consolidate the position of Hong Kong, China as an international financial center. At the same time, Hong Kong can use its own financial market advantages and the institutional innovation brought about by the Stablecoin Act to provide a "test field" for the internationalization of other currencies. The bill allows the issuance of non-US dollar stablecoins, which can expand the use of non-US dollar currencies in international payment, settlement, investment and financing scenarios, and accelerate the internationalization process. In short, the Hong Kong Stablecoin Act has a far-reaching impact on currency internationalization, but this process still needs to continue to pay attention to financial stability risks and optimize and adjust relevant policies in a timely manner.
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The development risks of the cryptocurrency industry: the impact of stablecoins on the traditional financial system exceeds expectations, and the progress of regulatory policies is slower than expected.
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Stablecoin Act: A Milestone in Crypto Regulation
The European Union, the United States, and Hong Kong, China have successively established stablecoin regulatory frameworks
Stablecoins are a type of cryptocurrency whose value is anchored to a specific asset (usually a fiat currency). They are a bridge between the decentralized financial system (Defi) and the traditional financial system, and are also an important infrastructure for the decentralized financial system (Defi). The United States recently passed the Stablecoin Act, becoming the first bill in the United States to establish a regulatory framework for stablecoins, filling the regulatory gap in this area. Just two days later, Hong Kong, China also passed a stablecoin bill with similar functions, which will help Hong Kong, China participate in the competition for global digital financial centers and consolidate its position as an international financial center. Stablecoins are a "bridge" between the traditional financial system and the decentralized financial system (Defi). Following the European Union, the United States and Hong Kong, China have both introduced regulatory frameworks for stablecoins, which has become an important step for cryptocurrencies to integrate into the mainstream financial system.
Figure 1: Crypto assets are beginning to take on the characteristics of a currency and financial system
Source: CICC Research Department
Figure 2: Principles of mainstream stablecoins
Source: Tether, MakerDao, CICC Research
Chart 3: USD stablecoins based on highly liquid assets dominate among stablecoins
Note: Data as of May 31, 2025
Source: CoinGecko, CICC Research
From "wild growth" to gradual standardization
Previously, there have been several major risks and regulatory events in the stablecoin field, including the collapse of TerraUSD (UST) in 2022, the unclear underlying assets of Tether (USDT) leading to regulatory restrictions in the EU in 2024, and the New York financial regulator requiring Binance USD (BUSD) to stop minting in 2023. The stablecoin-related bills in the United States and Hong Kong, China mainly target the risk points that have appeared in the industry before, including the opacity of reserve assets, liquidity management risks, unstable value of algorithmic stablecoins, money laundering and illegal financial activities, and insufficient consumer protection. A series of regulations have been formulated, the main contents of which include:
1. In terms of liquidity, stablecoin reserve assets are required to be 100% anchored to legal tender or highly liquid assets, including cash, demand deposits, short-term U.S. Treasury bonds, etc. Reserve assets need to be isolated from operating funds to prevent misappropriation;
2. In terms of access qualifications, issuers are required to obtain regulatory licenses and set minimum capital entry thresholds;
3. Require stablecoins to be included in the existing anti-money laundering regulatory framework and set customer identification requirements;
4. In terms of consumer protection, it is required to ensure that users can redeem at face value and that customer funds have priority in repayment in the event of bankruptcy;
5. Explicitly prohibit stablecoin interest payments to reduce the impact on the traditional financial system.
In fact, the above stablecoin bills all refer to the regulatory framework for traditional financial institutions, setting similar requirements for licenses, capital, liquidity management, anti-money laundering, consumer protection, etc., but are more stringent in liquidity management. The statutory reserve ratios for banks in the United States, the European Union and Hong Kong, China are all close to 0%, but the reserve ratio for stablecoin issuers is 100%. We believe that this is mainly due to the fact that there is a relatively mature and strict supervision of banks, and bank customer deposits are generally for the savings and physical operation needs of residents and enterprises. Banks also pay interest on deposits, so deposit liquidity is relatively stable; but stablecoins require no interest, transactions are more frequent, and liquidity conditions are unstable. In addition, as an important infrastructure of decentralized finance (Defi), stablecoins are anchored to fiat currencies such as the US dollar, and they also need stronger reserve assets as underlying support. In summary, the positioning of overseas regulators for stablecoins is not "on-chain deposits", but "on-chain cash" (although the issuer is a commercial institution, which is different from the central bank's digital currency), thereby laying a solid foundation for the decentralized financial system.
Figure 4: The regulatory framework for stablecoins is becoming more complete
Source: US Senate, Hong Kong Monetary Authority, European Parliament, CICC Research Department
How to understand the impact of stablecoins on the financial system?
In terms of scale, by the end of May 2025, the market value of mainstream stablecoins will total approximately US$230 billion, an increase of more than 40 times compared to the size at the beginning of 2020, a relatively fast growth rate. However, it is still relatively small compared to the mainstream financial system, such as US dollar deposits (onshore deposits of approximately US$19 trillion[6]) and US Treasury bonds (approximately US$37 trillion[7]), and is also smaller than mainstream cryptocurrencies (Bitcoin market value of approximately US$2 trillion[8]). However, in terms of transaction volume, stablecoins play an obvious role as an important means of payment and infrastructure in the cryptocurrency system. According to institutional estimates, the annual transaction volume of mainstream stablecoins (USDT and USDC) reaches US$28 trillion[9], exceeding the annual transaction volume of credit card organizations Visa and Mastercard[10] (approximately US$26 trillion, although the large number of high-frequency transactions in stablecoins may make this data not completely comparable); this data is also higher than the transaction volume of Bitcoin in 2024 (US$19 trillion). With the inclusion of stablecoins in the financial regulatory framework, decentralized finance is also expected to usher in development opportunities and deepen its integration with the traditional financial system, which will also bring new challenges and risks to the global financial system.
1. Lower cost and more efficient international payment method
According to the World Bank, the average global remittance rate is 6.62% as of the third quarter of 2024. The United Nations 2030 Sustainable Development Goals require that this fee be reduced to no more than 3%, and the arrival time will take 1-5 working days. The efficiency of the traditional financial system is mainly affected by the SWIFT network, which needs to go through multiple transit banks. In contrast, the transaction cost of using stablecoins for remittances is generally less than 1%, and the time is generally within a few minutes. However, it is worth noting that stablecoin payments have not been included in KYC and anti-money laundering supervision before the bill was introduced, which also poses a challenge to cross-border capital account control in emerging markets. Therefore, although the use of stablecoins for cross-border payments is technically more efficient, in fact, this difference comes to a certain extent from regulatory differences. With the standardization of regulation, the compliance cost of stablecoins may also increase. Due to the potential impact on the capital accounts and monetary sovereignty of emerging markets, stablecoins are also subject to regulatory restrictions in some countries and regions. In the long run, as the regulatory framework improves, we expect that the market share of stablecoins in international payments is expected to increase, although this process is still accompanied by industry development and regulatory improvement.
Figure 5: Comparison between traditional cross-border payment and stablecoin payment models
Source: SWIFT, CICC Research Department
2. Full reserve requirement limits money creation
In theory, the 100% reserve asset requirement limits the ability of stablecoin issuers to expand credit. The process of converting deposits into stablecoins is actually the transfer of bank deposits rather than creation. Therefore, the issuance of stablecoins theoretically does not affect the US dollar money supply. Specifically:
1. If reserve assets are used for deposits, the money supply remains unchanged, and residents' deposits are converted into an equal amount of stablecoins and interbank deposits; if reserve assets are used to purchase government bonds held by residents, enterprises and non-bank institutions, the money supply remains unchanged, and government bonds in circulation in the market are converted into stablecoins. However, when funds continue to flow out of deposits, it may lead to bank balance sheet reduction and a reduction in money supply.
2. The US dollar stablecoin has an attractive effect on other currencies. The process of exchanging other currencies for US dollar stablecoins actually produces the effect of currency exchange, but this is reflected in the cross-border or cross-account flow of US dollars and does not affect the total US dollar money supply.
3. Lending platforms that use cryptocurrencies as collateral actually play a credit creation function similar to that of banks, which can increase the scale of "quasi-currency" (i.e. stablecoin) in the decentralized financial system, but do not affect the supply of traditional money. Since the application scenarios involved in the crypto asset financial system are mainly concentrated in the fields of payment and investment, there are fewer lending scenarios. As of the end of 2024, the scale of crypto asset lending platforms is about US$37 billion, which is relatively small.
Figure 6: The impact mechanism of stablecoins on traditional money supply
Source: U.S. Treasury Department, CICC Research Department
Chart 7: Impact of stablecoin issuance on money supply
Source: CICC Research Department
3. Disintermediation impact on banks’ deposits
The impact of stablecoins on the banking system is mainly reflected in the financial disintermediation effect (i.e., disintermediation). The conversion of deposits into stablecoins may lead to deposit outflows. Although the purchase of government bonds, reverse repurchases and other assets by stablecoin issuers will cause deposits to flow back to banks, in the long run, it will lead to the replacement of bank liabilities from savings deposits to interbank liabilities, or cause banks to reduce their bond holdings and shrink their balance sheets, resulting in pressure on bank interest spreads and erosion of profits. This effect is similar to the impact of money funds and high-yield bond markets on the banking system. For example, since 2022, deposits have flowed to money funds in the high-interest rate environment in the United States, accounting for about US$2.3 trillion, which has become one of the triggering factors of the Silicon Valley Bank risk event.
From the perspective of the Stablecoin Act, the US regulatory act explicitly requires that stablecoins do not pay interest, which can reduce the attractiveness of stablecoins to deposits to a certain extent; the vast majority of deposits are used for daily fund settlement and have stickiness; although the scale of stablecoins has grown rapidly, it is only about 1% of the scale of bank deposits in the United States. Assuming that the scale of stablecoins maintains an annual growth rate of 15% in the past three years, the scale of deposits attracted by stablecoins will be about US$200-300 billion by 2030, accounting for about 1% of deposits[11], and the impact is relatively limited. However, in the long run, there are two risks:
1. The development speed of stablecoins exceeds expectations. For example, the market forecast cited by U.S. Treasury Secretary Bessant believes that by 2028, the scale of stablecoins will increase from the current US$200-300 billion to US$2 trillion, implying an 8-fold growth rate in 3 years, which is significantly higher than the annualized growth rate of 15% in the past three years;
2. It is more convenient for stablecoins to obtain investment returns through indirect forms, such as investing in Tokenized MMF (tokenized money market funds), RWA (real-world assets that can generate income), Staking Derivatives, etc., so that non-interest-bearing stablecoins can generate income and increase their attractiveness to deposits.
According to statistics from the Federal Deposit Insurance Corporation of the United States, as of the end of 2024, of the approximately US$18 trillion in deposits in U.S. banks, approximately US$6 trillion were transaction deposits, which were classified by the U.S. Treasury as deposits that are theoretically at risk of loss. However, we believe that considering that the development of stablecoins has been incorporated into the government's regulatory framework, the impact on the financial system is also included in the scope of policy discretion, making the impact relatively controllable.
At the same time, traditional banks have also conducted some explorations to adapt to the development trend of stablecoins and cope with the challenges of deposit diversion. For example, JPMorgan Chase Bank in the United States launched JPM Coin to tokenize the US dollar and serve the cross-border payments and securities transactions of institutional clients; Societe Generale launched the US dollar stablecoin USD CoinVertible and the euro stablecoin EUR CoinVertible for institutions and investors; Standard Chartered Bank established a joint venture to issue Hong Kong dollar stablecoin and applied for a license from the Hong Kong Monetary Authority, etc.
Chart 8: Deposits facing loss risk are mainly transaction-type interest-free deposits
Source: FDIC, CICC Research Department
Figure 9: Deposit disintermediation in the United States intensifies in a high interest rate environment
Source: Federal Reserve, FDIC, CICC Research Department
4. Absorbing government debt and affecting monetary policy transmission
Stablecoin issuers become buyers of U.S. debt. USDT and USDC reserve assets are mainly short-term U.S. Treasury bonds and reverse repurchase agreements, with short-term U.S. Treasury bonds accounting for 66%/41% of USDT/USDC reserve assets respectively. As of the first quarter of 2025, USDT and USDC issuers hold a total of about $120 billion in U.S. debt reserves. If they are combined as an "economy", they will rank 19th in the ranking of overseas economies holding U.S. debt, between South Korea and Germany.
How to understand the role of stablecoins in taking over government debt? As the market value of stablecoins rises, we expect that the demand for U.S. Treasury bonds as reserve assets may increase. If the market forecast cited by U.S. Treasury Secretary Bensont is followed, the scale of stablecoins will rise from the current $200-300 billion to $2 trillion by 2028, exceeding Japan, the current largest holder of U.S. debt. However, it is worth noting that stablecoins can mainly take over short-term U.S. debt within 3 months. We expect that the absorption capacity of long-term U.S. debt is relatively limited, and the short-term U.S. debt interest rate is subject to the monetary policy regulation of the central bank, depending on real economic factors such as inflation and employment. The central bank can hedge by reducing or increasing the supply of base money.
Impact on monetary policy transmission. As mentioned earlier, stablecoin issuers buy U.S. Treasuries, which lowers short-term interest rates and requires the central bank to withdraw currency for hedging; in the long run, the attraction of stablecoins to deposits may lead to financial disintermediation, and the migration of financing from the traditional financial system to the decentralized financial system, which may also weaken the effectiveness of the central bank's monetary policy regulation.
Chart 10: USDT and USDC reserve assets are mainly short-term government bonds and reverse repo
Note: As of the first quarter of 2025
Source: Tether, Circle, CICC Research
Figure 11: In the long term, stablecoins may take over some of the demand for US Treasury bonds
Note: The scale of US debt held by stablecoins in 2030 comes from the market forecast cited by US Treasury Secretary Bessant
Source: U.S. Treasury, Tether, Circle, CICC Research
Chart 12: The scale of US debt held by mainland China has declined in recent years
Source: U.S. Treasury Department, CICC Research Department
5. Transmission of crypto asset price fluctuations to financial markets
The impact of stablecoins on the financial market mainly lies in three aspects:
1. From the perspective of money creation, as mentioned above, the lending behavior within the decentralized financial system realizes the creation function of "quasi-currency", especially the purchase of tokenized stock assets through stablecoins will cause funds to flow directly into/out of the stock market;
2. From the perspective of market sentiment, cryptocurrency prices fluctuate greatly, affecting stock market expectations. Historically, the Nasdaq index and Bitcoin prices have shown a certain correlation;
3. Targets related to crypto assets and stablecoins in the stock market, such as crypto asset exchanges and financial institutions, affect stock prices through changes in fundamentals.
Chart 13: Cryptocurrency prices are correlated with the Nasdaq index
Source: Bloomberg, CICC Research
6. Potential forces for restructuring the international monetary order
For the US dollar, the impact of stablecoins is more "contradictory":
On the one hand, since 99% of the current fiat stablecoin market value is pegged to the U.S. dollar, the development of stablecoins seems to be able to consolidate the dominant position of the U.S. dollar in the global financial system;
But on the other hand, the international background for the development of stablecoins and crypto assets is actually based on the trend of de-globalization, the rising risks of geopolitical restrictions and weakening fiscal discipline in the financial field, and the need for some economies to de-dollarize.
Therefore, the high degree of stablecoins pegged to the US dollar is not only a reflection of the dollar's global financial dominance on the chain, but also a "bridge" for the global financial system to move from the dollar's dominance to a more diversified new order. This may explain why the rise and popularity of crypto assets in recent years have also been accompanied by the intensification of the trend of deglobalization. In addition, the EU and Hong Kong, China have also opened up space for the issuance of non-US dollar stablecoins, competing for the dollar's dominance in the field of stablecoins. In the long run, whether the status of the US dollar will continue to strengthen under the guidance of the new regulatory framework, or whether it will be challenged by other currencies and crypto assets themselves, remains to be observed in the development of the industry.
For emerging economies, since stablecoins are competitive with local currencies, if local residents and corporate sectors use stablecoins for settlement, the local currency will actually be converted into US dollars, leading to currency depreciation and inflation; therefore, for financial security reasons, many economies have introduced restrictive measures on the use of stablecoins.
Chart 14: The dollar dominates major financial systems
Note: Data as of the end of 2024
Source: Brookings, U.S. Treasury, CICC Research
7. Implications for currency internationalization
For the Hong Kong dollar, regulating the issuance of stablecoins, especially the Hong Kong dollar stablecoin, will help enhance the influence of the Hong Kong dollar in cross-border payments, crypto assets and other fields, enhance the international competitiveness of Hong Kong's financial industry and the Hong Kong dollar, and consolidate the status of Hong Kong, China as an international financial center. At the same time, Hong Kong can use its own financial market advantages and the institutional innovation brought about by the Stablecoin Act to provide a "test field" for the internationalization of other currencies. The Act allows the issuance of non-US dollar stablecoins, which can expand the use of non-US dollar currencies in international payment, settlement, investment and financing scenarios, and accelerate the internationalization process. In short, the Hong Kong Stablecoin Act has a far-reaching impact on the internationalization of currency, but this process still needs to continue to pay attention to financial stability risks and optimize and adjust relevant policies in a timely manner.
Chart 15: RMB’s share in global foreign exchange reserves has room to increase
Source: IMF, Barry Eichengreen, CICC Research Department
Risk Warning
1. Risks in the development of the cryptocurrency industry: Currently, the regulation of the cryptocurrency industry is in its infancy, and there is still great uncertainty in the development of the industry. Potential risks include opaque reserve assets, liquidity management risks, unstable value of algorithmic stablecoins, money laundering and illegal financial activities, and insufficient consumer protection.
2. The impact of stablecoins on the traditional financial system exceeds expectations: The cryptocurrency industry is developing rapidly, and the development of stablecoins may have an impact on the traditional financial system and affect the business development of traditional financial institutions.
3. Regulatory policy progress is slower than expected: The current stablecoin regulatory framework still needs to be improved. It takes time for regulatory policies to be launched and implemented, and there is a risk that subsequent policies may not progress as expected.