Stablecoins’ opportunities and challenges to the international status of the US dollar

Author: Shen Jianguang, Source: FT Chinese Network

Introduction

Since the stablecoin company Circle went public at the beginning of this month, its stock price has risen from the IPO price of US$31 to US$180 (as of June 27). Circle is the world's second largest US dollar stablecoin company, and its outstanding stock price performance reflects the recognition of global investors for the prospects of stablecoins. In fact, stablecoins may not only cause major changes in the global cross-border payment field, but also have an impact on the global monetary system.

At the recent Lujiazui Forum, Zhou Xiaochuan, former governor of the People's Bank of China, specifically mentioned that if the dollar stablecoin is supported by the dollar system, the dollar stablecoin is likely to have a global impact, including "further promoting the dollarization phenomenon" in many countries. So, at a time when the dollar's status as the most important international reserve currency is being questioned, can stablecoins strengthen the dollar's international status? What are the challenges?

The dominance of the dollar stablecoin strengthens the dollar's international status

Stablecoin is a cryptocurrency with an "anchor" attribute. For example, a dollar stablecoin is formed by anchoring it to the US dollar at a 1:1 ratio, and a euro stablecoin is formed by anchoring it to the euro. The most common method of issuing stablecoins is to issue stablecoins by using relevant legal currencies as collateral to ensure the anchoring of cryptocurrencies to legal currencies. Stablecoins anchored to legal currencies have the attributes of openness, transparency, decentralization, globalization, and low transaction costs that blockchain technology and distributed ledgers give to cryptocurrencies, as well as the characteristics of stable value of legal currencies.

Due to the dual advantages of stablecoins, their payment function is being widely recognized by the market, and their value storage function is gradually being discovered. According to data from the World Bank, existing cross-border small-amount bank remittances usually take about 3-5 working days to settle, with an average cost rate of 6.35%. However, blockchain-based stablecoin payments support global "7*24" real-time payments, and the fees are very low. For example, the average cost of sending stablecoins through blockchains such as Solana is less than $1. With the improvement of the stablecoin payment ecosystem, stablecoins have rapidly developed from the initial transaction settlement of the crypto asset market to diversified applications in cross-border trade payments, daily transaction payments, financial investment settlements, employee salary payments, and prevention of local currency depreciation.

Under this circumstance, the issuance scale of stablecoins has also continued to expand. At present, the market size of stablecoins exceeds US$260 billion. In the past 12 months, the number of active stablecoin holding addresses has exceeded 240 million. The adjusted number of stablecoin payment transactions is as high as 1.4 billion times, and the transaction volume is as high as US$6.7 trillion. Investment company ARK Invest's calculations show that in 2024, the payment transaction volume of stablecoins will exceed the total transaction volume of Visa and Mastercard. In May 2025, the US Treasury Borrowing Advisory Committee (TBAC) predicted that the market size of stablecoins will reach 2 trillion US dollars in 2028.

At present, the US dollar stablecoin accounts for more than 95% of the global stablecoin market, which is largely related to the loose regulation of stablecoins by US regulators, while other major economies are more cautious in regulation. After Trump took office as US President again, he actively promoted the formulation of the US stablecoin and cryptocurrency regulatory bill, and the main policy line shifted from the previous strict restrictions to "supporting innovative and standardized development". On June 17, the US Senate passed the "National Innovation Act to Guide and Establish US Stablecoins", which clarified the legal status and regulatory arrangements of stablecoins and laid the foundation for the legal application and innovation of stablecoins. In turn, although the European Union passed the "Crypto-Asset Market Regulation Act" (Stablecoin "MiCA Act") in 2024, it is much stricter than the US regulations on some core issues, which makes the issuance of stablecoins in Europe not active, and the scale of euro stablecoins is also very limited; even the virtual currency exchange Binance was forced to remove the world's largest stablecoin USDT from the EU.

Since the share of US dollar stablecoins in stablecoins is much higher than the share of the US dollar in international payments, foreign exchange reserves, international bond issuance and other fields, the expanding application of stablecoins has strengthened the status of the US dollar as the world's most important payment, pricing and reserve currency. The international currency status of the US dollar today is generally believed to be related to three main factors: the United States' international status and legal system, its huge economic size and the world's largest financial market, and the network effects that support the use of the US dollar, including SWIFT. The convenient and cheap features of US dollar stablecoins have actually further expanded the advantages of the network effects of the US dollar system, and brought about what former Governor Zhou Xiaochuan called "further promoting the dollarization phenomenon."

For example, in cross-border payments and daily payments, the emergence of US dollar stablecoins may attract more companies and individuals to settle in US dollars rather than other currencies; in some countries with high inflation and foreign exchange controls, since stablecoins can be obtained in some way by connecting to the Internet in principle, a large number of individuals and small and micro enterprises are using US dollar stablecoins to preserve assets or make large payments to avoid the risk of currency depreciation. In my opinion, these phenomena all show that the US dollar has formed a more obvious currency substitution for the currencies of other countries, which essentially increases the demand for the US dollar and is conducive to consolidating the international status of the US dollar. In fact, US Treasury Secretary Scott Bessant has repeatedly stated that US dollar stablecoins not only expand the scope of use of the US dollar, but will also "support the continued demand for US Treasury bonds" and "maintain the US dollar as the world's leading reserve currency."

Stablecoins also challenge the international status of the US dollar

However, even if the US dollar stablecoin continues to maintain its dominant position in the stablecoin market, its role in the international currency status of the US dollar is more reflected in the "icing on the cake" aspect, and it cannot reverse the trend of the decline of the US international status. If the US political governance and rule of law environment deteriorate, fiscal risks continue to accumulate, and the abuse of US dollar financial sanctions cannot be changed, the market will lose confidence in the US dollar, and stablecoins alone will certainly not be able to turn the tide. In addition, many other economies are also changing their regulatory attitudes towards stablecoins; if stablecoins of other currencies are also issued on a large scale, it is uncertain whether it will be a blessing or a curse for the US dollar.

On the one hand, the two pillars supporting the international status of the US dollar outside of the use of the network have weakened in recent years, which has aroused doubts about the credit of the US dollar in the international community. For example, Trump's erratic trade policy and even interference in the independence of the Federal Reserve are undoubtedly a reflection of the decline of the US governance environment. The high US fiscal deficit also increases the risks of the operation of the US economy and financial markets. On May 17 this year, Moody's downgraded the US sovereign credit rating due to "deterioration of fiscal indicators."

In addition, the excessive use of financial sanctions by the US government has also led some countries to take the initiative to reduce their dependence on the US dollar. Not only has Russia, which has been the first to bear the brunt, worked hard to promote the ruble settlement of its oil exports and increase the proportion of RMB and gold in its foreign reserves, but other countries including China, India, and Brazil have also increased non-US dollar assets such as gold in their foreign reserves and reduced their dependence on the US dollar in bilateral settlements. These negative factors cannot be overcome by issuing US dollar stablecoins.

On the other hand, as other countries are also changing their regulatory attitudes towards stablecoins, the impact of stablecoins on the network effect of the US dollar in the long run also needs to be observed. Since 2025, the US policy shift on stablecoins and crypto assets has had a great driving effect and activated the regulatory legislative intentions of other countries. Recently, the United Kingdom, Australia, Japan, South Korea, Turkey, Argentina, Nigeria, the Cayman Islands, Panama and other countries have issued or announced bills to promote the regulation of stablecoins and cryptocurrencies. It can be expected that stablecoins anchored to other fiat currencies may increase significantly.

In this case, the legal currency of any country can realize global payments and remittances at a lower cost, bypassing the existing international settlement system including the SWIFT system. Does this also mean that there may be a fairer competition opportunity between the currencies of various countries and the US dollar, which is not conducive to the international currency dominance of the US dollar? The author believes that this issue is very important and requires further observation before a conclusion can be drawn.

The issuance of offshore RMB stablecoins is of great significance

With the increasing importance of China in the international economic and financial system, the internationalization of the RMB has made some progress. For example, according to SWIFT statistics, the ranking of the RMB in global payment currencies in 2024 will basically remain around fourth. However, at a time when financial and trade digitalization are developing rapidly internationally and various applications of stablecoins are expanding significantly, the issuance of offshore RMB stablecoins is undoubtedly a new tool for promoting the internationalization of the RMB in the context of digitalization.

In addition, even if the policy level has not officially approved the promotion of offshore RMB stablecoins, the market has already promoted offshore RMB stablecoins as needed. In 2019, Tether, the world's largest stablecoin issuer, has issued offshore RMB stablecoins. In 2022, TRON also launched the offshore RMB stablecoin TCNH. In 2023, CNHC Group (now renamed Trust The Hong Kong Stock Exchange (HKEX) has also issued offshore RMB stablecoins, but the scale is still relatively small.

From the current situation, Hong Kong is the most important offshore RMB center. In recent years, it has also been actively improving the regulatory mechanisms for stablecoins and cryptocurrencies, and has taken the development of stablecoins and crypto asset services as an important means to boost Hong Kong's status as an international financial center. The author believes that issuing offshore RMB stablecoins in Hong Kong first should be China's best choice to promote the issuance of offshore RMB stablecoins, and then it can be expanded to offshore financial districts in Shanghai and Hainan. The development of stablecoins has extremely strong scale effects and network effects. If you take one step slowly, you will take another step slowly. The time to issue RMB stablecoins is urgent.