The Potential Impact of Stablecoins on the Financial System

Stablecoins, as a type of cryptocurrency, can connect traditional financial systems and decentralized financial systems, serving as an important infrastructure for decentralized finance. Recently, the United States and Hong Kong have successively passed stablecoin regulation bills, marking the beginning of the establishment of a stablecoin regulatory framework in major regions around the world, providing institutional support for the development of stablecoins.

Stablecoin regulatory framework gradually established

The stablecoin bill in the United States and Hong Kong has established a series of regulations aimed at the risk points that previously existed in the industry:

1. Requires 100% reserve assets to be pegged to fiat currency or highly liquid assets.
2. Issuers must obtain regulatory licenses and establish capital thresholds
3. Incorporate into the anti-money laundering regulatory framework
4. Strengthen consumer protection
5. Prohibition of interest on stablecoins

These regulatory requirements refer to the regulatory framework of traditional financial institutions, but they are stricter in terms of liquidity management. Regulators have positioned stablecoins as "on-chain cash" rather than "on-chain deposits" to strengthen the foundation of decentralized finance.

Potential Impact of Stablecoins on the Financial System

1. Improve the efficiency of international payments

Stablecoins can significantly reduce the cost and time of cross-border payments, but as regulations tighten, their compliance costs may also increase. In the long term, the share of stablecoins in international payments is expected to rise.

2. Restrict currency creation function

The 100% reserve requirement limits the credit expansion capacity of stablecoin issuers. The issuance of stablecoins theoretically does not affect the traditional money supply, but it may lead to a shift of funds from bank deposits to stablecoins.

3. Impact on Bank Deposits

Stablecoins may lead to deposit outflows, causing bank liabilities to shift from savings deposits to interbank liabilities. However, the current scale of stablecoins is relatively limited, and the short-term impact is manageable. The long-term risk lies in the development speed of stablecoins exceeding expectations or in obtaining investment returns through indirect means.

4. Undertaking government debt demand

Stablecoin issuers have become important buyers of U.S. Treasury bonds. As the scale of stablecoins expands, this may further increase the demand for short-term U.S. Treasury bonds, but the impact on long-term U.S. Treasury bonds is limited.

5. The impact on the transmission of monetary policy

Stablecoins may lead to a migration of financing from traditional finance to decentralized finance, weakening the effectiveness of central bank monetary policy. Central banks need to adjust the issuance of base money to hedge against the impact.

6. Impact on the financial market

Stablecoins influence financial markets through various channels, including quasi-money creation, market sentiment transmission, and the stock prices of related listed companies.

7. Reconstructing the International Monetary Order

Stablecoins could both reinforce the dominance of the US dollar and serve as a "bridge" for the diversification of the global financial system. They pose challenges to emerging market currencies and require vigilance regarding financial security risks.

8. Promote Currency Internationalization

The Hong Kong stablecoin bill creates conditions for the issuance of non-U.S. dollar stablecoins, helps to enhance the internationalization of the Hong Kong dollar, and also provides a "testbed" for the internationalization of other currencies.

Overall, stablecoins bring opportunities as well as challenges, requiring continuous attention to their impact on the financial system and timely adjustments to relevant policies.