With the faster-than-expected expansion of stablecoins in recent years, their impact on the international monetary system has become increasingly profound. Against this backdrop, this paper employs a novel analytical perspective—the "currency circulation domain"—to systematically analyze the theoretical logic behind stablecoins' influence on the international monetary system from spatial, institutional, and functional dimensions. Based on the currency circulation domain perspective, this paper, combined with the latest case studies and data, further reveals the current state of stablecoins' impact on the international monetary system and provides corresponding policy recommendations for strengthening stablecoin regulation and reforming the international monetary system, aiming to systematically address the structural changes occurring in the currency circulation domain. Overall, the analytical framework of this paper provides a new perspective and theoretical support for understanding the global expansion of stablecoins and their profound impact on the international monetary system.
This article was published in the 8th issue of International Trade and Economic Cooperation in 2025. For ease of reading, this article is published in two parts, this is the second part.
The impact of stablecoins on the international monetary system: An analysis based on the monetary circulation domain
The Current Status of Stablecoins' Impact on the International Monetary System from the Perspective of the Currency Circulation Domain
From the perspective of the monetary circulation domain, we can not only better understand "why cryptocurrencies and stablecoins are difficult to regulate and curb"—that is, the root cause lies in the lack of institutional frameworks for new monetary circulation domains—but also more clearly observe the trajectory of stablecoins' impact on the international monetary system . Specifically, this includes four aspects: First, the blurring of boundaries in the monetary circulation domain. The decentralized and globally circulating characteristics of stablecoins blur the geographical boundaries of traditional currencies, especially evident when US dollar stablecoins are adopted by traditional payment institutions. Second, the reshaping of monetary power. US dollar stablecoins can be traded without bank accounts or traditional payment networks, lowering the barrier to entry and expanding the circulation of the US dollar and its international monetary power. Third, competition between public and private currencies. Stablecoins rely on market-driven global networks, significantly different from the state-led CBDC expansion model. Fourth, the challenge to regulation. The lack of unified global regulatory standards leads to a regulatory vacuum in the cross-border circulation of stablecoins, increasing financial risks and facilitating illegal activities. This section will combine the latest data and case studies to deeply analyze the multiple impacts of stablecoins (mainly US dollar stablecoins) on the current international monetary system from these four aspects.
Boundary Dissolution from the Perspective of the Monetary Circulation Domain: The Accelerated Integration of the Infrastructure for International Fiat Currency Circulation with Stablecoins
The current international monetary system relies on traditional banking systems and the SWIFT network for cross-border payments. However, due to the involvement of multiple intermediaries (the transacting parties and intermediary banks, etc.) and anti-money laundering and anti-fraud compliance reviews in the clearing and settlement process, it generally suffers from high transaction costs, slow speeds, and low transparency. In contrast, stablecoins significantly simplify the international transfer process through blockchain technology. The sender only needs to transfer stablecoins directly to the recipient's wallet address. In this process, the transaction is reviewed and approved by the blockchain network, and once confirmed, it is permanently recorded on the blockchain, ensuring transparency, security, and instant settlement (BIS, 2023). Although stablecoin payment providers are subject to anti-money laundering regulations similar to those for fiat currencies, the transfer time is still much shorter than traditional cross-border payment systems. In recent years, with the significant advancements in blockchain infrastructure (high-performance blockchains capable of executing thousands of transactions per second have been deployed), the efficiency and cost advantages of stablecoin cross-border payments have been fully demonstrated (Adachie et al., 2022), and more and more individuals and businesses are choosing to use stablecoins for cross-border payments. Statistics from Token Terminal show that global monthly stablecoin transfer volume increased tenfold over the past four years (2020-2024), from $100 billion per month to $1 trillion. Because stablecoin trading involves a large number of automated trading programs that facilitate stablecoin arbitrage, liquidity provision, and market making, Visa further adjusted its algorithm to reflect the actual scale of stablecoins used for transfer payments. After the adjustment, the global stablecoin transfer volume in October 2024 was $512 billion (compared to only $17.8 billion in October 2019), with 119.5 million transactions, indicating strong market demand for stablecoins in global payments and cross-border transactions. Furthermore, stablecoins operate year-round, maintaining high trading levels even on weekends.
Beyond transaction data, many traditional companies and emerging fintech platforms in the payment sector have recently accelerated the application of stablecoins in traditional payment systems. First, internet payment platforms are rapidly venturing into stablecoin business. PayPal, for example, launched its stablecoin PayPal USD (PYUSD) in August 2023 to simplify and accelerate transaction processes across its vast global user network. In October 2024, PayPal partnered with EY to complete its first stablecoin commercial remittance using PYUSD. That same month, another internet payment giant, Stripe, announced a partnership with Paxos to support stablecoin payments. Second, traditional payment institutions are actively integrating stablecoin payments. Visa, the world's second-largest card payment organization, became one of the first major financial institutions to use the Solana blockchain for large-scale stablecoin settlements as early as September 2023. In October 2024, Visa announced the establishment of the blockchain platform VTAP to help institutions independently issue and operate stablecoins. Finally, SWIFT, as the core of the current global payment system, is also actively working towards stablecoin compatibility. For example, BVNK launched a SWIFT-compatible payment solution, enabling businesses to easily exchange between US dollars, euros, and stablecoins. Japan's three major banks have also begun exploring the integration of stablecoins with SWIFT, attempting to improve the efficiency of cross-border payments and reduce related fees. Stablecoin payments have gained increasing acceptance from mainstream financial institutions and businesses, and will accelerate their integration into the global financial system, gradually changing existing payment models and currency circulation methods. This trend is leading to changes in the form and scope of international currency circulation, dominated by the international monetary system, and is also accelerating the blurring of the boundaries between the circulation domains of fiat currencies and cryptocurrencies.
Power Reshaping from the Perspective of the Currency Circulation Domain: The Sovereignty of Non-US Currencies Suffers More Severe Impact
From a theoretical perspective, stablecoins pegged to fiat currencies like the US dollar may pose a challenge to the monetary sovereignty of some countries. Particularly in countries experiencing severe inflation or currency devaluation, the public may prefer using stablecoins pegged to foreign currencies over their own fiat currencies. This could lead to capital flight and exacerbate dollarization, while also weakening the function of the domestic currency (Frost et al., 2021; Garita et al., 2024). Former Acting Comptroller of the Currency, Brooks, also argues that with the market capitalization of dollar-backed stablecoins reaching hundreds of billions of dollars and supporting transaction volumes exceeding trillions of dollars, more and more citizens in high-inflation countries are choosing to use dollar-backed stablecoins as synthetic savings accounts. They don't need to open accounts at local banks, only an internet connection. Furthermore, many stablecoins pay interest and have low or even zero transaction fees, allowing them to escape the monetary policies of developing countries and store the value of their labor in a relatively stable dollar form. Even in some countries that have publicly declared their abandonment of the dollar (Latin America and Africa), a growing number of startups are offering stablecoin savings and payment options.
In this cycle of extreme easing and tightening monetary policy by the Federal Reserve, stablecoins have developed into an important alternative channel for obtaining US dollars. Especially in countries with unstable or depreciating currencies, people are more willing to transfer their wealth to stablecoins to avoid the risk of currency devaluation. Data shows that in 2024, in 17 countries or regions (emerging market countries), businesses and consumers paid an average premium of 4.7% higher than the standard US dollar price for stablecoins, totaling $4.7 billion, and is projected to increase to $25.4 billion by 2027. Argentina had the highest stablecoin premium at 30%, followed by Nigeria at 22.1%, indicating extremely high demand for stablecoins among local residents and businesses. Severe currency devaluation, economic instability, and limited access to the traditional US dollar have led people to turn to stablecoins for asset protection in these countries; in some of these countries, the proportion of stablecoin purchases on cryptocurrency exchanges has also surged. According to data from Bitso, since the second half of 2023, 38% of cryptocurrency purchases in Latin America have been Bitcoin, and 30% have been stablecoins. In Argentina, the proportion of purchases of US dollar stablecoins is as high as 60%, far exceeding Bitcoin's 13% level, making Argentina the largest stablecoin buyer in Latin America. Bitso found that when the Argentine peso's value fell below $0.004 in July 2023, the monthly trading volume of Argentine stablecoins surged to over $1 million the following month, and when it fell below $0.002 in December 2023, the trading volume exceeded $10 million the following month. Furthermore, since the peak period for stablecoin purchases is the first week of each month, it indicates that Argentinians buy stablecoins to protect their wealth when they receive their wages.
Public-private competition from the perspective of monetary circulation: The deployment progress of central bank digital currencies lags significantly behind their international circulation.
From a theoretical perspective, CBDCs, as legal digital currencies issued by central banks, provide a legitimate and regulated means of digital payment and reduce transaction costs. Their widespread adoption and corresponding targeted regulation may create a more challenging environment for cryptocurrencies, causing some of their advantages to disappear in the long term (Laboure et al., 2021). In particular, as public trust in CBDCs increases, stablecoins may become unusable as a medium of exchange (Ozili, 2023). In recent years, the European Central Bank (ECB) has actively promoted the research and development and implementation of a Euro CBDC, with one important goal being to counter the dominance of stablecoins and other emerging forces in the payments sector through a digital Euro.
However, in reality, stablecoins and CBDCs are leading the competition in the new monetary circulation arena. Data shows that although more than 100 countries and regions worldwide have initiated CBDC research and development, most are in the early to mid-stages of development, with significant uncertainties surrounding pilot programs and actual use. According to Statista, as of January 2025, only CBDC projects in China, Nigeria, the Bahamas, and Jamaica are "active," but their domestic penetration rate (market share) is less than 0.2%, limiting their progress in cross-border circulation. From a policy perspective, the development of CBDCs is simultaneously constrained by national governance capabilities and policy changes, as vividly illustrated in the cases of Nigeria and the United States.
In response to the impact of cryptocurrencies, the Nigerian government banned Nigerian commercial banks from engaging in any cryptocurrency transactions in February 2021. Subsequently, in October of the same year, it launched the central bank digital currency, eNaira, hoping to replace informal cryptocurrency-based activities. However, according to Ree (2023), a year after eNaira's launch, approximately 98.5% of official eNaira wallets had been abandoned, with only 1.5% actively used for transactions. Meanwhile, between July 2022 and June 2023, cryptocurrency trading volume in Nigeria increased by 9% year-on-year, reaching $56.7 billion. Cryptocurrency exchange KuCoin stated that many Nigerian citizens not only did not actively use eNaira but also used cryptocurrencies (especially stablecoins) as alternatives for storing and transferring assets. Between July 2023 and June 2024, the usage of stablecoins in Nigeria further increased, making Nigeria the largest stablecoin user in sub-Saharan Africa, accounting for approximately 40% of stablecoin inflows. Ultimately, in January 2024, the Nigerian government was forced to lift the cryptocurrency ban and announced plans to develop the Naira stablecoin cNGN in partnership with a consortium of Nigerian banks, fintech companies, and blockchain firms. This demonstrates that, lacking technological and economic governance capabilities, CBDCs cannot effectively compete with global stablecoins such as those issued by the US dollar.
The second case involves a fierce policy battle within the US government between issuing a CBDC and supporting a dollar-backed stablecoin. The Democratic Party supports the Federal Reserve's issuance of a dollar-backed CBDC, arguing that as an official action, it can help the US play a leading role in setting international digital financial transaction standards related to CBDCs and curb the rapid expansion of private sector power in the digital dollar sector. In 2022, the Federal Reserve partnered with MIT on Project Hamilton, aiming to explore the technical feasibility of CBDCs, providing a theoretical and practical foundation for a digital dollar while maintaining financial stability and development leadership through government-led financial innovation (Bao Hong, 2022). In contrast, Republicans argue that the US payment industry has seen continuous innovation precisely in the absence of a CBDC, and that the Federal Reserve's CBDC might crowd out such innovation by "dominating the field." With Trump's re-election, dollar-backed stablecoins gained even stronger support. They not only strongly supported Congress in advancing legislation on digital assets, strengthening the regulation of dollar-backed stablecoins and the entire digital asset market, but also issued executive orders prohibiting federal agencies from creating CBDCs. As the issuer of the world's largest reserve currency and the world's largest economy, Trump's policies will further solidify the monopoly of the US dollar stablecoin and may have an international demonstration effect on the formulation of public policies in the monetary circulation field.
Regulatory Challenges from the Perspective of Currency Circulation: The Expanding Gray Areas of International Regulation
Due to the technical characteristics of stablecoins and the lack of uniformity in regulatory standards across different regions, they often operate in a "gray area" within the existing international monetary regulatory framework. In recent years, with the increasing circulation of stablecoins, the use of decentralized stablecoins and decentralized money laundering tools, and the "abuse of power" by centralized stablecoin issuers, the challenges they pose to international regulation have become increasingly severe, particularly making it difficult to effectively regulate and punish cross-border criminal activities. Specifically:
With the emergence of decentralized stablecoins (such as DAI) and decentralized mixers, users can complete transactions without relying on third-party institutions, thus circumventing regulations. For example, criminals can use smart contracts to split large sums of stablecoin funds into multiple addresses, then conduct multiple transactions through mixers to "launder" the funds, ultimately consolidating them into "clean" assets. Back in 2019, the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) added Tornado Cash to its sanctions list, accusing it of involvement in over $7 billion in cryptocurrency money laundering activities and prohibiting U.S. citizens and businesses from using the service. However, this failed to completely curb its operations. In 2023, the FBI and IRS arrested Tornado Cash's founder, accusing him of assisting criminals in laundering over $1 billion through mixers. However, the mixer is still operating, with a significant portion of its transactions involving stablecoins. According to statistics from blockchain analytics firm Chainalysis, the trading volume of coin mixers has increased significantly since 2020, exceeding $1 billion for the first time in the fourth quarter of 2020 and remaining at around $2 billion after the first quarter of 2021. Furthermore, approximately 10% of funds transferred from cryptocurrency addresses associated with illicit activities are transferred via coin mixers, making it difficult for regulators to track the flow of criminal funds. In my country, since the second half of 2020, cryptocurrencies have become a major money laundering channel for various illegal and criminal activities and the gray market. Not only is the USD stablecoin USDT a primary currency involved, but the use of decentralized exchanges and coin mixers has also become a significant factor (Wang Xiaowei, 2022).
Centralized stablecoin issuers occupy a "weakly regulated" zone between the two currency circulation domains, making their abuse of power increasingly prominent. As a crucial link in the cryptocurrency ecosystem, stablecoin issuers play a role in the market similar to banks in the traditional financial system. However, some issuers have engaged in improper practices such as inflating collateral and manipulating the market. For example, Tether, the world's largest issuer of a US dollar stablecoin, has long been controversial due to allegations of failing to strictly adhere to the 1:1 collateral ratio. In 2023, the US Commodity Futures Trading Commission (CFTC) fined it a massive $41 million for misrepresenting sufficient US dollar reserves, misleading customers and the market. Globally, however, there are no regulatory bodies or policies commensurate with the circulation scope of US dollar stablecoins, making it difficult to regulate and constrain their issuers outside their jurisdiction. Especially in emerging markets and developing countries, US dollar stablecoins and their issuers enjoy a privileged market position. Currently, this situation appears to be exacerbated by the Trump administration's strong support policies.
Policy Recommendations
This article argues that the emergence of cryptocurrencies and the development of blockchain technology have profoundly transformed the monetary circulation domain. As a bridge bridging the fiat currency and cryptocurrency circulation domains, stablecoins have not only significantly boosted the cryptocurrency ecosystem in recent years but also, by endowing fiat currencies with decentralized, digital, and globally accessible characteristics, have rendered traditional financial regulatory methods and systems ineffective, posing a continuous challenge to the international monetary system from multiple perspectives. Therefore, to ensure the stability and sustainable development of the international monetary system, it is necessary to start with the institutional construction of the monetary circulation domain, namely, establishing an institutional framework and technological capabilities that match the characteristics of the new monetary circulation domain. At the current stage, the institutional design of the monetary circulation domain faces two very thorny issues: first, in the new monetary circulation domain, the public sector cannot provide sufficiently attractive options, leading to the dominance of stablecoins. The two are essentially a competition between the dual monetary powers of "state-market"; the second issue is the "monopoly" of US dollar stablecoins. Therefore, this article proposes the following policy recommendations:
First and foremost, the most crucial step is to expedite the implementation of global regulations for stablecoins (especially USD stablecoins). The current predicament does not stem from a lack of applicable policy documents; the Financial Stability Board (FSB) published its global stablecoin regulatory report as early as 2022 (FSB, 2022), and the European Union introduced the world's first comprehensive cryptocurrency regulation—the Markets in Crypto Assets Regulation Bill (MiCA)—in May 2023. The main issue lies in the significant differences in regulatory attitudes and capabilities among different countries. Given that many developing countries have long suffered from USD stablecoins, it is recommended that China actively initiate international cooperation to strive for the establishment of a dedicated international regulatory body. This would involve establishing and implementing a globally unified regulatory framework and technological platform to comprehensively safeguard the international financial order.
Secondly, it is recommended to accelerate the reform of a diversified international monetary system by taking CBDC or digital Special Drawing Rights (eSDR) as the starting point. The rise of stablecoins not only indicates that the reform of the international monetary system is imperative, but also points out that digital means may be a key and effective direction for reform. From the perspective of the monetary circulation domain, CBDC or eSDR are both reform options that can be considered. Among them, as a nationally led digital currency, CBDC has significant advantages in cross-border payments and financial stability due to its legitimacy and security, while also preserving national control over monetary policy and financial stability. However, the difficulty lies in ensuring that the research and application of CBDCs in various countries are synchronized and have strong interoperability. In this regard, China can take proactive measures to vigorously promote the experience of digital RMB and central bank digital currency bridges, attracting more countries to participate in the research and development and cross-border use of CBDCs. From the perspective of the evolution of the international monetary system, the issuance of supranational currencies by international organizations such as the IMF is, in the long run, an option to replace the US dollar standard, and eSDR also has the advantages of convenient and flexible cross-border use and more stable actual value (Guan Tao, 2023). For developing countries in particular, this represents a more realistic international monetary option than CBDCs. As a major developing country, my country can encourage more countries to actively participate in exploring stablecoins pegged to the SDR, led by the IMF, to alleviate developing countries' dependence on US dollar stablecoins and address their own shortcomings in technological capabilities and financial governance.
Finally, it is recommended to promote the integration of stablecoins with the traditional financial system within a controllable scope. Due to the advantages of blockchain payment-as-settlement, both CBDCs and stablecoins have promising development prospects and will have a significant impact on the construction of cross-border payment networks and the reform of the international monetary system (Liu Dongmin & Song Shuang, 2020). In addition to payments and remittances, stablecoins can be combined with traditional financial products such as securities and loans, promoting the application of smart contracts in financial transactions. This integration is expected to improve the automation of financial transactions, reduce transaction costs, and enhance the efficiency of financial markets (Feyen et al., 2021). Therefore, promoting the innovative application of stablecoins within a legal regulatory framework, while ensuring financial stability, has multiple benefits. China could consider exploring the innovation and application of Hong Kong dollar, Australian dollar, or offshore RMB stablecoins in Hong Kong and Macau as a pilot observation area. On the one hand, it can explore the establishment of a scientific compliance framework that balances efficiency and security; on the other hand, it can explore attracting financial institutions and the blockchain industry to develop innovative applications of stablecoins, especially trying innovative combinations of digital RMB and stablecoins in cross-border scenarios, to achieve a dual-track system of "sovereign control and market efficiency."
