The Potential Impact of Stablecoins on the Financial System

Stablecoins are an important bridge linking traditional finance and decentralized finance. Recently, several major regions have successively passed stablecoin regulatory bills, marking the formation of a global regulatory framework for stablecoins. This not only brings opportunities for the development of decentralized finance but may also have far-reaching impacts on the global financial system.

Stablecoin Regulation: From Wild Growth to Standardized Development

Recently, the United States and Hong Kong have successively passed stablecoin legislation, filling the regulatory gap in this area. These laws establish a series of norms targeting the risk points that have emerged in the industry, including requirements for reserve asset transparency, liquidity management, and anti-money laundering. Overall, the stablecoin regulatory framework refers to the regulation of traditional financial institutions, but is more stringent in liquidity management, requiring 100% reserve assets. This reflects the regulators' positioning of stablecoins as "on-chain cash" rather than "on-chain deposits".

Potential Impact of Stablecoins on the Financial System

1. Improve cross-border payment efficiency

Stablecoins can achieve lower costs and higher efficiency in international payments. Compared to traditional cross-border remittances, stablecoin payment rates and arrival times have obvious advantages. However, with the standardization of regulations, the compliance costs of stablecoins may increase. In the long term, the market share of stablecoins in international payments is expected to rise, but this process still requires industry development and regulatory improvement.

2. Limited impact on money supply

Due to the requirement for 100% reserve assets, the issuance of stablecoins will not directly increase the money supply in theory. The conversion of deposits into stablecoins is actually a transfer of bank deposits, rather than credit creation. However, if funds continue to flow out of deposits, it may lead to a contraction of bank balance sheets, indirectly affecting the money supply.

3. Impact on bank deposits

The main impact of stablecoins on banks is reflected in the effect of financial disintermediation. The conversion of deposits into stablecoins may lead to outflows of deposits, which will affect the banks' liability structure and profitability in the long run. Currently, the scale of stablecoins is relatively limited, but if future growth exceeds expectations, the diversion effect on deposits is worth noting.

4. Undertaking government debt demand

Stablecoin issuers have become significant buyers of U.S. Treasuries. As the market value of stablecoins rises, the demand for short-term U.S. Treasuries may further increase. This could impact short-term interest rates, necessitating central banks to hedge through monetary policy operations.

5. Financial Market Transmission Effects

Stablecoins can influence financial markets through various channels, including the creation of "quasi-money" through lending in decentralized financial systems, the impact of cryptocurrency price fluctuations on market sentiment, and changes in the stock prices of crypto-related assets.

6. The impact on the international monetary order

The impact of stablecoins on the US dollar is somewhat contradictory. On one hand, most stablecoins currently peg to the US dollar, seemingly reinforcing the dollar's status; on the other hand, the rise of stablecoins also reflects the demand for de-dollarization in some economies. In the long term, it remains to be seen whether stablecoins will challenge the dollar's dominant position. For emerging economies, the use of stablecoins may put pressure on their local currencies.

7. Insights on Currency Internationalization

The development of stablecoins provides new channels and opportunities for the internationalization of non-US dollar currencies. For example, the Hong Kong stablecoin bill allows for the issuance of non-US dollar stablecoins, which helps to enhance the influence of the Hong Kong dollar in cross-border payments, crypto assets, and other fields. This offers new ideas for the internationalization of other currencies, but attention must still be paid to financial stability risks.

Risk Warning

The stablecoin industry still faces uncertainties in its development, with potential risks including the lack of transparency in reserve assets and liquidity management risks. In addition, the impact of stablecoins on the traditional financial system may exceed expectations, and there are also risks of regulatory policies not advancing as anticipated. It is essential to closely monitor industry developments and policy changes in the future.