With the development of crypto assets and cryptocurrencies, stablecoins—which serve as pricing and trading instruments for crypto asset transactions—have experienced further growth. As tokens pegged to fiat currencies, stablecoins possess quasi-monetary characteristics and function as critical infrastructure for crypto finance, bridging the gap between crypto finance and traditional finance. Without stablecoins, these two financial systems would develop in isolation: crypto finance would have little impact on the real economy, and cryptocurrencies would largely remain speculative instruments. Stablecoins, however, connect these two markets. While they expand the scope of crypto finance, they may also transmit risks from crypto finance to the traditional financial system. Conversely, risks originating in the traditional financial system could spill over into the crypto space.
The use of stablecoins originated from the need for crypto asset trading. However, with their introduction, stablecoins have increasingly entered real-world applications such as cross-border payments and may further penetrate supply chain finance, including retail and B2B transactions. They are transitioning from on-chain payments to off-chain applications, highlighting their growing importance. Additionally, as more off-chain assets move on-chain—a trend known as Real-World Asset (RWA) tokenization—the demand for stablecoins as payment and trading tools will continue to rise. Consequently, it is essential to consider the impact and risks stablecoins pose to the financial system.
Stablecoins and the Banking System
Although stablecoins are tokens representing existing currencies, in countries with underdeveloped financial systems or high inflation, they are widely used in commercial activities as payment instruments, measures of value, and stores of value—effectively functioning as de facto currencies. As off-chain applications of stablecoins expand, particularly in cross-border payments, their monetary functions become more pronounced. This trend poses certain challenges to traditional banking payment systems.
Stablecoins may also structurally impact the banking sector by incentivizing the shift of small deposits into large deposits and the concentration of deposits from small banks to large banks. While the total volume of deposits remains unchanged, the structure of deposits undergoes transformation. Large banks may gain more substantial deposits and business opportunities, while small and medium-sized banks could be disadvantaged in the competition. This shift not only affects banks' business models but may also have profound implications for the stability of financial markets.
The Relationship Between Stablecoins and Central Bank Digital Currencies (CBDCs)
Stablecoins and CBDCs are not necessarily competitors; instead, they may complement and coordinate with each other. For instance, state-owned enterprises and large corporations might rely more on the secure CBDC system for transactions, while many small and medium-sized enterprises and individuals may prefer market-issued stablecoins due to their higher transaction speed and convenience. This division of labor allows stablecoins and CBDCs to function synergistically. Furthermore, coordination between them is possible—for example, by requiring stablecoin issuers to hold CBDCs as reserves, directly pegging stablecoins to the central bank's digital currency rather than relying solely on short-term government bonds.
In economies with high inflation and underdeveloped financial systems, dollar-denominated stablecoins may replace local currencies, leading to a phenomenon known as dollarization. While this strengthens the international dominance of the U.S. dollar, it also poses significant risks to the United States. If the U.S. issues dollar-backed stablecoins globally via blockchain, it would resemble the development of offshore U.S. dollars in the past. The current scale of offshore U.S. dollars is substantial, posing challenges to the Federal Reserve's control over the money supply and interest rates. Similarly, the scale of on-chain dollar stablecoins could become vast, akin to offshore dollars, and influence the decision-making of U.S. monetary authorities.
Stablecoins and Macroeconomic Policy
As stablecoin issuance becomes more diversified, fintech companies are increasingly participating in money creation. While this trend has positive aspects, it also introduces new risks. If stablecoins are backed by government bonds held by fintech firms, the power to issue money may partially shift from central banks to the treasury, potentially weakening the authority of central banks.
Stablecoin issuance impacts monetary and fiscal policies. The growth of stablecoins and on-chain finance could diminish the intermediary role of banks, affecting the transmission mechanism of monetary policy—similar to the role of shadow banking. Reserve asset requirements for stablecoins may increase the demand for short-term government bonds, influencing the central bank's control over short-term interest rates and altering the maturity structure of government debt. This could lead to issues such as short-term debt being used for long-term investments.
Stablecoins and the Internationalization of the Renminbi (RMB)
The internationalization of the RMB cannot achieve significant breakthroughs solely through RMB-backed stablecoins. Ultimately, it depends on the opening of capital accounts and full currency convertibility. Capital account liberalization is the "principle," while stablecoins are merely a "tool"—the "tool" cannot solve the challenges of the "principle."
However, as the supply of RMB-backed stablecoins increases, the demand for offshore RMB assets will rise significantly, promoting the development of the offshore RMB market. When the offshore RMB market reaches a certain scale, disparities between onshore and offshore RMB interest and exchange rates may emerge, triggering large-scale cross-border arbitrage. This could challenge capital account controls and accelerate the opening of China’s capital accounts.
Conclusion
As an emerging financial infrastructure, stablecoins play a positive role in enhancing payment efficiency and bridging on-chain crypto finance with traditional finance. However, they also introduce new risks and challenges. It is crucial to prioritize the risks associated with stablecoins, leverage digital technology to strengthen the regulation of their issuance and trading, and promote the development of offshore RMB-backed stablecoins. Only by doing so can we enjoy the convenience and efficiency offered by stablecoins while effectively mitigating potential financial risks, ensuring the stability and healthy development of the financial system.
