The Global Expansion of Stablecoins
In June 2025, landmark regulatory milestones were achieved: Hong Kong's Stablecoin Ordinance took effect, followed by the U.S. Senate passing comprehensive stablecoin legislation. Amid this regulatory evolution, USD-pegged stablecoins like USDT and USDC continue to dominate the $250B+ market, accounting for 99% of global stablecoin circulation.
This rapid growth reflects both technological advantages and unresolved challenges:
Key Opportunities
- Cross-Border Efficiency: Enables 24/7 instant settlement, reducing transaction times dramatically.
- Programmability: Smart contracts allow customizable payment solutions surpassing traditional API-based banking services.
- Financial Inclusion: Blockchain-based systems offer greater accessibility for underserved populations.
Critical Challenges
- Monetary Policy Risks: Shadow banking circulation may weaken central banks' control over money supply.
Financial Stability Concerns:
- Potential "bank runs" from poor reserve management
- Contagion risks if Treasury markets experience liquidity shocks
- Digital Dollarization: Most stablecoins amplify USD dominance, complicating currency diversification efforts.
Three Emerging Issuance Models
| Model | Characteristics | Examples | Key Considerations |
|---|---|---|---|
| Private Issuance | Non-bank entities with HQLA reserves | USDT, USDC | Strengthens USD hegemony |
| Bank Deposit Tokens | Licensed institutions issuing tokenized deposits | JP.M Coin | Limited innovation potential |
| Two-Tier System | Wholesale CBDC backing retail stablecoins | Fnality, Helvetia | Balances innovation with oversight |
The two-tier system demonstrates particular promise by:
- Preserving central bank settlement finality
- Maintaining monetary unity across issuers
- Enabling comprehensive regulatory compliance
- Leveraging existing financial infrastructure
Strategic Recommendations for China
Policy Framework Considerations
- Regulatory Prudence: Align with China's "comprehensive financial supervision" principles before authorizing private stablecoins
- Offshore RMB Potential: Explore bank-issued deposit tokens in Hong Kong/London markets through initiatives like Project Agorá
- Interest Rate Management: Implement safeguards against cross-border arbitrage exploiting onshore/offshore yield differentials
Systemic Priorities
- Balance Wholesale-Retail Focus: Current overemphasis on remittances (≤10% of cross-border volume) neglects larger institutional flows
- Infrastructure Synergies: Integrate stablecoins with China's digital currency ecosystem (e.g., e-CNY internationalization)
- Gradual Implementation: Pilot programs should assess real-world trade settlement utility beyond theoretical "point-to-point" advantages
FAQ: Addressing Common Concerns
Q: Can stablecoins truly reduce cross-border payment costs by 90%?
A: Current savings primarily stem from unabsorbed regulatory costs. Full compliance may significantly narrow this advantage.
Q: How does the two-tier model prevent financial instability?
A: Wholesale CBDC backing ensures liquidity without forcing asset fire sales during stress events.
Q: What distinguishes Chinese stablecoin strategy from Western approaches?
A: China prioritizes integration with real economic needs over dollar hegemony preservation.
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