By Liu Bin (Director of Financial Research Office, Pudong Institute for Reform and Development)
The recent breakthrough in U.S. stablecoin legislation reflects multiple strategic considerations with far-reaching implications for global finance.
Strategic Motivations Behind U.S. Stablecoin Legislation
Short-Term Fiscal Objectives
The Clarity for Payment Stablecoins Act (GENIUS Act) primarily addresses funding challenges for U.S. Treasury bills:
- Projects suggest stablecoin reserves could provide $1.6–3.7 trillion by 2030 to support Treasury markets
- Creates new liquidity channels while stabilizing short-term debt instruments
Long-Term Monetary Dominance
This legislative move continues the evolution of dollar hegemony:
- Extends the dollar's trajectory from gold-backed → petrodollar → digital/tokenized currencies
- Counteracts declining global USD usage share (from 71% in 2001 to 58% in 2023)
👉 How stablecoins are reshaping global finance
Geopolitical Positioning
Stablecoins may emerge as a parallel system to SWIFT:
- Dollar-pegged stablecoins currently dominate 99% of the market
- Creates new tools for economic statecraft and cross-border influence
Global Implications of Stablecoin Expansion
1. Transforming Financial Ecosystems
- $6.6 trillion potential deposit migration from traditional banks (Morgan Stanley estimate)
- Traditional players like BlackRock and Fidelity accelerating crypto integration
- PayPal's PYUSD demonstrating hybrid finance models
2. Emerging Currency Competition Landscape
| Currency Zone | Current Stablecoin Presence | Development Stage |
|---|---|---|
| USD | Dominant (99%) | Mature ecosystem |
| EUR | Emerging | Pilot projects |
| JPY | Limited | Regulatory phase |
| CNY | Offshore CNH trials | Experimental |
Regulatory fragmentation creates arbitrage opportunities while increasing systemic risk
3. Challenges for Digital Yuan Internationalization
- Tether's planned CNH stablecoin may test China's capital controls
- Agora Project (US/EU/UK) developing blockchain-based cross-border alternatives
- Hong Kong's regulatory advances provide strategic counterbalance
China's Dual-Pronged Strategy
Onshore Development
Digital Yuan International Center (Shanghai) focusing on:
- Cross-border payment corridors
- Trade settlement pilots
- Financial infrastructure interoperability
Offshore Collaboration
Shanghai-Hong Kong synergy framework:
- Joint regulatory sandboxes
- Interoperable technical standards
- Controlled CNH stablecoin issuance
👉 The future of sovereign digital currencies
FAQ Section
Q: How do stablecoins differ from CBDCs?
A: Stablecoins are privately issued but asset-backed, while CBDCs are direct central bank liabilities with sovereign guarantee.
Q: What prevents other currencies from challenging USD stablecoins?
A: Network effects, existing financial infrastructure, and regulatory headstarts create significant entry barriers.
Q: Can digital yuan compete with dollar stablecoins?
A: Requires building equivalent developer ecosystems and cross-border adoption channels beyond China's immediate sphere.
Q: Why is Hong Kong critical to China's strategy?
A: Serves as controlled testing ground for international financial integration while maintaining mainland policy safeguards.
Q: What's the biggest risk in stablecoin adoption?
A: Regulatory divergence creating financial stability risks through jurisdictional arbitrage.