How will stablecoins affect the traditional financial system?

Mobile Payment Network News: Recently, discussions surrounding the regulatory framework for stablecoins and their impact on the international monetary system have continued to heat up. Driven by both policies and hot topics, the commercialization of global stablecoins has significantly accelerated.

At the same time, stablecoins, as digital cryptocurrencies pegged to fiat currencies, are rapidly growing and profoundly impacting the traditional financial system due to their stable value, convenient transactions, and low costs.

Stablecoins Will Reshape Cross-Border Payments and the International Monetary Landscape

Hong Kong Financial Services and the Treasury Bureau Director-General Paul Chan Chun-yu once explained in an interview that one of the main scenarios for stablecoins is cross-border and cross-jurisdictional payments. Stablecoins are based on blockchain technologies such as peer-to-peer transactions, distributed ledgers, consensus mechanisms, on-chain settlement, and smart contracts. These technologies offer advantages such as convenient transactions and low costs. They can also bypass the SWIFT system and the correspondent banking model, significantly shortening the cross-border payment chain, improving efficiency and reducing costs. Therefore, cross-border payments are clearly a key application scenario for the future compliant issuance of stablecoins. Consequently, stablecoins will profoundly transform the underlying logic of the cross-border payment system, positively impacting settlement efficiency and cost optimization. Furthermore, in regions with weak payment infrastructure, such as Africa, stablecoins will fill the gaps left by traditional payment tools. Furthermore, the decentralization and traceability of blockchain technology can effectively empower cross-border trade. With the help of smart contracts, stablecoins can enable conditional triggering and automated payments, unaffected by third-party intermediaries, making them suitable for conditional payment scenarios in cross-border settlements. Based on blockchain technology, stablecoins' public ledgers are accessible online, ensuring full transaction traceability and strengthening anti-money laundering compliance. Furthermore, the accelerating integration of stablecoins with the traditional financial system is an inevitable trend, and participating in the development of stablecoin regulation and rules has become a crucial component of international financial governance. Since 2025, traditional financial institutions such as Visa, Citigroup, and Bank of America have accelerated their stablecoin development, accelerating the development of stablecoins towards regulatory compliance and significantly expanding their application scope, extending their use cases from cross-border payments to core financial sectors such as asset custody and derivatives settlement. These have made stablecoins a global hub connecting traditional finance and the digital economy. Currently, the underlying anchor asset of most global stablecoins is the US dollar. Their international use may further strengthen the US dollar's dominance in the international monetary system and curb the development of a multipolar international monetary system. Emerging economies may develop a "dual currency economy," where their own currencies run parallel to US dollar stablecoins, or even accelerate "dollarization." In response, various countries and regions have begun actively developing their own stablecoins to counter US dollar penetration. This will create competition for US dollar stablecoins and provide new opportunities for the internationalization of other currencies. As stablecoins become a vital component of the global financial system, the power to set their underlying standards and rules has shifted to control cross-border clearing, price digital assets, and dominate financial infrastructure. As of the end of August, at least 11 countries and regions, including major economies like the United States, the European Union, and Japan, had already initiated legislative processes regarding the development and regulation of stablecoins. This has established a competitive landscape in the global stablecoin sector, where sovereign credit is bound by legal force and rule-making power is competed for through technical standards. Stablecoins will impact the traditional banking payment system. As stablecoins gradually gain traction among consumers, Decentralized Finance (DeFi) will rapidly develop. Decentralized finance offers a variety of financial services, including trading, lending, savings, and insurance, without relying on traditional financial intermediaries. On decentralized exchanges (DEXs), stablecoins are often used as the base currency for trading pairs with other crypto assets, improving trading liquidity and reducing slippage, making them particularly suitable for high-frequency trading and arbitrage strategies. The rise of stablecoins could lead to financial disintermediation, meaning that funds flow around the traditional banking system, potentially impacting the banking industry's deposit-taking and credit creation capabilities. On the one hand, stablecoins could replace some bank deposits, leading to a loss of deposits. Some DeFi platforms may offer high interest rates and convenient payment features to entice users to convert their bank deposits into stablecoins, leading to an outflow of demand deposits from traditional banks. A US Treasury study shows that approximately $5.7 trillion in transactional demand deposits and $0.9 trillion in transactional non-demand deposits in the US traditional banking sector are at risk of being diverted to stablecoins. On the other hand, deposits are the foundation of bank loans. Businesses using stablecoins for settlement or financing could reduce their demand for traditional bank loans. At the same time, the outflow of deposits could inhibit banks' lending capacity, increase borrowing costs, and weaken credit availability, particularly impacting small and medium-sized banks. In cross-border payments, traditional payments rely on the bank account system, while stablecoins, based on the token wallet paradigm, decouple cross-border payments from bank accounts. This low-cost, high-efficiency payment method will directly compete with banks' cross-border payments and third-party payment institutions. In the retail payments sector, stablecoin wallets and Web3 payment tools offer users new options for completing transactions without traditional bank accounts. This could reduce banks' reliance on payment interfaces, impacting their core fee income and customer reach. Stablecoins Will Bring Monetary Policy and Financial Stability Challenges The rapid development of stablecoins will also introduce new risks to the traditional financial system, posing challenges to financial stability and the regulatory framework. First, stablecoins may lead to an increase in money supply, and large-scale stablecoin circulation may weaken the central bank's monetary control. If a large amount of funds shift from bank deposits to stablecoins, financial disintermediation will accelerate, potentially affecting money creation and the effectiveness of monetary policy transmission. Second, the stability of stablecoins depends largely on the quality and transparency of their reserve assets. If the reserve mechanism is insufficient or asset quality faces downward pressure, there is a risk of causing market confidence fluctuations and even redemption pressure, which could in turn affect the stability of the traditional financial system. Finally, due to their convenience and anonymity, stablecoins may be used for illegal activities such as illegal gambling, underground banking, money laundering fraud, and darknet transactions. The potential for money laundering and terrorist financing brought about by anonymity also increases regulatory difficulties. Furthermore, as the regulatory framework for stablecoins is still under development and regulatory standards vary across countries, the lack of regulatory coordination will increase compliance costs for banks operating across borders. This fragmentation could also lead to regulatory arbitrage and compliance risks. Facing the opportunities and challenges presented by stablecoins, traditional financial institutions around the world are actively preparing and responding. On the one hand, banks are accelerating their deployment of blockchain technology, building distributed ledger systems that support financial security, tokenizing traditional assets, and developing cross-chain settlement protocols. On the other hand, traditional financial institutions are actively exploring the issuance and operation of compliant stablecoins, attempting to integrate stablecoins into core business scenarios such as supply chain finance, cross-border trade, and wealth management, and improving payment efficiency through smart contracts. Of course, banks must adhere to more stringent and complex anti-money laundering (AML) and countering the financing of terrorism (CFT) requirements when conducting stablecoin-related business. As an emerging digital financial instrument, stablecoins have complex impacts. While they present opportunities for the traditional financial system by improving payment efficiency, reducing transaction costs, and promoting financial innovation, they may also pose challenges by diverting deposits, intensifying competition, and introducing new risks. In the future, the integration of traditional finance and stablecoins is likely to deepen. The traditional financial system needs to actively embrace technological innovation, strengthen risk management, and explore cooperation and integration with the stablecoin ecosystem under a compliance framework to adapt to this digital financial transformation.