Against the backdrop of accelerated digital currency development and intensified monetary competition, stablecoins are a type of cryptocurrency pegged to fiat currencies or other real-world assets at a designated exchange rate to maintain a stable value. They are penetrating core areas of the financial sector, including cross-border clearing, savings and asset tokenization.
In particular, the rise of stablecoins pegged to the US dollar is reshaping the global currency competition landscape. Systematically assessing the global impact of dollar stablecoins is a key strategic task for China”s push to help shape a new international monetary order.
Stablecoins are rapidly becoming a crucial component of the global digital financial system. As of July 27, their global market capitalization had reached $272.9 billion, accounting for about 7 percent of the cryptocurrency market. The annual on-chain transaction volume was $36.3 trillion, exceeding the combined totals of Visa and Mastercard.
Stablecoins are widely used in cross-border payments, investment, trading, settlements and savings. In high-inflation economies, they serve extensively as a savings tool alternative to the greenback. They have also become a key settlement vehicle for real-world assets brought on-chain, accounting for over 90 percent of the RWA market.
RWAs are tangible or traditional financial assets, such as real estate, commodities, bonds or invoices, that are digitally represented and traded on a blockchain.
On the regulatory front, major economies are accelerating their frameworks for stablecoin oversight and pursuing differentiated approaches to bring stablecoins into compliance.
The United States, through the GENIUS Act, has established a dual federal-state regulatory system; the European Union’s Markets in Crypto-Assets Regulation (MiCA) institutes set regional entry thresholds and cap non-euro stablecoin daily transactions at 200 million euros ($230.9 million); and the Stablecoins Ordinance commenced operations in the Hong Kong Special Administrative Region on Aug 1, introducing a high-threshold licensing regime.
In effect, the global stablecoin market is highly concentrated, with USDT and USDC together capturing more than 80 percent of market capitalization and trading volume. Dollar stablecoins are not only reinforcing the greenback’s status as the global currency reserve and settlement currency, but also bringing new challenges to multilateral monetary governance.
Pegged 1:1 to the dollar and backed by equivalent reserves in cash and short-term US Treasuries, dollar stablecoins leverage blockchain technology to enable real-time cross-border clearing, enhancing the greenback’s reach and liquidity in emerging markets. This further concentrates global reserves in US dollar assets. Some central banks have even added dollar stablecoins to their reserve portfolios.
In some high-inflation countries, households use dollar stablecoins as a store of value, eroding the role of local currencies and creating risks of “digital dollarization” that challenge monetary sovereignty and financial stability.
Moreover, stablecoin issuance compliance extends the reach of US regulatory power. Issuers typically follow US “know your customer” and anti-money laundering regulations, which brings on-chain transactions under the supervision of US regulators.
The US can freeze addresses or halt services, and the fact that leading stablecoin issuers are subject to US jurisdiction further strengthens its influence over the on-chain financial system.
By strengthening the attractiveness of dollar-denominated assets in the global reserve system, dollar stablecoins may limit the space for nondollar currencies — such as the renminbi — in foreign exchange reserve allocations.
Dollar stablecoins have gradually established alternative payment channels in some emerging markets that bypass traditional systems. This could also narrow the space for the renminbi to expand its payment role through cross-border trade.
Last but not least, the liquidity and acceptance advantages of dollar stablecoins in emerging pricing scenarios such as on-chain commodity trading and RWA platforms could, in the near term at least, constrain the renminbi’s ability to establish pricing power.
In response to the impact of dollar stablecoins, China should leverage Hong Kong SAR’s role to promote the integration of renminbi-pegged stablecoins with the digital renminbi. The country can in the future incorporate such stablecoins into a prudential regulatory system to manage risks, while strengthening multilateral cooperation and enhancing China’s influence in international monetary governance.
First, efforts can be made to accelerate cross-border applications of the e-CNY. China could advance the mBridge project — a multilateral platform for testing central bank digital currencies, including the e-CNY in cross-border payments. It could also deepen technical alignment with the Association of Southeast Asian Nations and with economies participating in the Belt and Road Initiative. Priority should be given to sectors such as energy trade to develop demonstration projects for cross-border payments.
Second, regulators can support licensed institutions in Hong Kong to issue offshore renminbi-pegged stablecoins. This can connect decentralized finance with traditional clearing scenarios and expand the yuan’s use for pricing and settlement in digital asset trading, supply chain finance and other emerging scenarios.
Third, it is worth considering leveraging the trade networks backed by the Regional Comprehensive Economic Partnership and BRI to broaden the renminbi’s international usage.
China can sign local currency settlement agreements with key economies, promote renminbi pricing in the fields of commodities and infrastructure, and embed renminbi stablecoins into blockchain-based trade finance.
Meanwhile, regulators should bring stablecoin activities under macro-prudential regulation to balance innovation and risk. Major stablecoin issuers should be subject to “quasi-bank” supervision and transparent liquidity management, and be required to hold high-liquidity sovereign assets with dynamic capital buffers.
Firewall mechanisms should be established to prevent risk contagion to the treasury bond market and manage risks of large-scale redemption. Exchange and contagion pathways between the digital renminbi, RWAs and stablecoins should be tested through regulatory sandbox mechanisms to enhance liquidity support and early-warning capabilities in extreme scenarios.
In terms of regulatory coordination, significant differences in the intensity of stablecoin regulation across jurisdictions have created opportunities for issuers to engage in regulatory arbitrage.
China can advocate for major economies to adopt unified and clearly defined requirements on the reserve asset audits, the legal definition of redemption rights and anti-money laundering standards, so as to effectively guard against cross-border risk transmission.
It also should seek to shift from being a passive adaptor of global stablecoin governance to a co-creator of rules.
Under the G20 framework, China could work with other emerging market economies to propose incorporating the “unified ledger” architecture promoted by the Bank for International Settlements into international standards. It could also integrate CBDCs and tokenized assets into programmable platforms to ensure the central role of sovereign currencies.
By promoting the convergence of standards and policy coordination within the G20, China can strengthen its financial security boundaries. It can also enhance its institutional influence in the international monetary system that is being reshaped by the digital era.
The writer is an associate research fellow at the Institute of Finance & Banking, which is part of the Chinese Academy of Social Sciences.
He is also a senior researcher at the National Institution for Finance & Development. The views do not necessarily reflect those of China Daily.