The impact of stablecoins on the international monetary system: An analysis based on the monetary circulation domain

With the expansion of stablecoins exceeding expectations in recent years, their impact on the international monetary system has become increasingly profound. Against this backdrop, this paper, employing the novel analytical perspective of the "currency circulation domain," systematically analyzes the theoretical logic behind the impact of stablecoins 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 stablecoin 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 *International Economic and Trade Exploration*, Issue 8, 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 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, the first being the blurring of boundaries within the monetary circulation domain. Stablecoins have several advantages. First, their decentralized and globally circulating nature blurs the geographical boundaries of traditional currencies, especially evident in the adoption of USD stablecoins by traditional payment institutions. Second, they reshape monetary power. USD stablecoins can be traded without bank accounts or traditional payment networks, lowering the barrier to entry and expanding the circulation of the USD and its international monetary power. Third, they compete with private currencies. Stablecoins rely on market forces to form global networks, significantly different from the state-led expansion model of CBDCs. Fourth, they challenge regulation. The lack of unified global regulatory standards creates a regulatory vacuum in the cross-border circulation of stablecoins, increasing financial risks and facilitating illegal activities. This section will analyze the multiple impacts of stablecoins (mainly USD stablecoins) on the current international monetary system from four aspects, combining the latest data and case studies. 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.), 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 the immediacy of settlement (BIS, 2023). Although stablecoin payment providers are subject to anti-money laundering regulations similar to those for fiat currencies, their transfer times remain significantly shorter than traditional cross-border payment systems. In recent years, with the tremendous 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 become fully apparent (Adachie et al., 2022), leading more and more individuals and businesses to choose stablecoins for cross-border payments. Token Terminal statistics 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 transactions involve 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 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 24/7, maintaining high trading volumes 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. Firstly, internet payment platforms are rapidly venturing into stablecoin business. For example, PayPal launched its stablecoin PayPal USD (PYUSD) in August 2023, aiming 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. Secondly, 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 stablecoin settlements on a large scale 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 compatibility with stablecoins. For example, BVNK launched a SWIFT-compatible payment solution, enabling businesses to easily exchange between USD, EUR, 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 Impacts

From a theoretical perspective, stablecoins pegged to fiat currencies such as the US dollar may pose a challenge to the monetary sovereignty of some countries.

From a theoretical perspective, stablecoins pegged to fiat currencies such as the US dollar may pose a challenge to the monetary sovereignty of some countries. Especially in countries with severe inflation or currency devaluation, the public may prefer to use stablecoins pegged to foreign currencies rather than their own fiat currencies. This not only leads to capital flight and exacerbates dollarization, but also weakens the function of the domestic currency (Frost et al., 2021; Garita et al., 2024). Former Acting Comptroller of the Currency Brooks also believes that because dollar-backed stablecoins have a market capitalization of hundreds of billions of dollars and support 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 do not need to open an account at a local bank, only an internet connection. At the same time, many stablecoins pay interest, and transaction fees are low or even zero, allowing them to escape the monetary policies of developing countries and store the value of their labor in the relatively stable form of the dollar. 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. During this cycle of extreme easing and tightening monetary policy by the Federal Reserve, stablecoins have become an important alternative channel for obtaining US dollars. Especially in countries where the local currency is unstable or depreciating, 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 to protect their assets; 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 in Bitcoin, and 30% in stablecoins. In Argentina, however, the proportion of USD-denominated stablecoin purchases is a staggering 60%, far exceeding Bitcoin's 13% and 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, monthly stablecoin trading volume surged to over $1 million the following month, and when it fell below $0.002 in December 2023, stablecoin trading volume exceeded $10 million the following month. Furthermore, the peak period for stablecoin purchases is the first week of each month, indicating that Argentinians buy stablecoins to protect their wealth when they receive their wages.

Public-private competition from the perspective of the monetary circulation domain: The deployment progress of central bank digital currencies lags significantly behind international circulation

From a theoretical perspective,CBDC, as a legal digital currency issued by the central bank, provides a legitimate and regulated digital payment method and reduces transaction costs. Its widespread introduction 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).

From a theoretical perspective,CBDC, as a legal digital currency issued by the central bank, provides a legitimate and regulated digital payment method and reduces transaction costs. Its widespread introduction 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).

Regulatory Challenges from the Perspective of Currency Circulation: The Gray Zone of International Regulation Continues to Expand

Due to the technical characteristics of stablecoins and the lack of uniformity in regulatory standards in different regions, they often operate in the "gray zone" of 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 to international regulation have become increasingly severe, especially 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, thereby circumventing regulation. For example, criminals can use smart contracts to split large amounts 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 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 a mixer. However, the mixer is still operating, with a significant portion of transactions involving stablecoins. According to blockchain analytics firm Chainalysis, the mixer's transaction volume has increased dramatically since 2020, first exceeding $1 billion in the fourth quarter of 2020 and remaining at around $2 billion after the first quarter of 2021. Furthermore, approximately 10% of funds in cryptocurrency addresses associated with illicit activities are transferred through 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 gray industries. Not only is the USD stablecoin USDT a primary currency involved in these cases, but it also incorporates the use of decentralized exchanges and coin mixers (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 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 USD stablecoin issuer, has long been controversial due to allegations of failing to strictly adhere to the 1:1 collateral ratio. In 2023, the U.S. Commodity Futures Trading Commission (CFTC) fined it a hefty $41 million for misrepresenting sufficient dollar reserves, misleading clients and the market. However, globally, there are no regulatory bodies or policies commensurate with the circulation of dollar-denominated stablecoins. The bottleneck lies in the difficulty of extraterritorial regulation and constraint of dollar-denominated stablecoin issuers. Especially in emerging markets and developing countries, dollar-denominated stablecoins and their issuers enjoy a privileged market position. Currently, this situation appears poised to be reinforced by the Trump administration's strong support policies. This article's core argument is that the emergence of cryptocurrencies and the development of blockchain technology have profoundly transformed the circulation domain of currency. As a bridge bridging the fiat currency and cryptocurrency circulation domains, stablecoins have not only significantly promoted the development of the cryptocurrency ecosystem in recent years, but also, by endowing fiat currencies with decentralized, digital, and globally accessible characteristics, have led to the failure of traditional financial regulatory methods and systems, and have exerted a continuous impact on 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 currency circulation domain, that is, to establish an institutional framework and technological capabilities that match the characteristics of the new currency 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. Essentially, this is a competition between the dual monetary powers of the "state-market" system. The second issue is the "monopoly" of US dollar stablecoins. Therefore, this paper proposes the following policy recommendations: First, the most crucial step is to expedite the implementation of regulations for stablecoins (especially US dollar stablecoins) globally. The current predicament is not due to a lack of reference 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 problem lies in the significant differences in regulatory attitudes and capabilities among different countries. Given that many developing countries have long suffered from the detrimental effects of dollar-denominated stablecoins, it is recommended that my country actively initiate international cooperation to strive for the establishment of a dedicated regulatory body at the international level. This would involve establishing and implementing a globally unified regulatory framework and technological platform to comprehensively safeguard the international financial order. Secondly, it is suggested that CBDCs or digital Special Drawing Rights (eSDRs) be used as a starting point to accelerate the reform of a diversified international monetary system. The rise of stablecoins not only demonstrates the imperative for international monetary system reform but also points to digitalization as a potentially key and effective reform direction. From the perspective of the monetary circulation domain, both CBDCs and eSDRs are viable reform options. Among them, as a nationally led digital currency, the legitimacy and security of CBDCs give them significant advantages in cross-border payments and financial stability, while also preserving national control over monetary policy and financial stability. However, the challenge lies in ensuring that the research and application of CBDCs across countries are synchronized and that they possess strong interoperability. In response, my country can take proactive measures to vigorously promote the experience of digital RMB and central bank digital currency (CBDC) 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 eSDRs also have the advantages of convenient and flexible cross-border use and more stable real value (Guan Tao, 2023). Especially for developing countries, this is a more realistic international monetary choice besides CBDCs. As a major developing country, my country can encourage more countries to actively participate and explore the issuance of stablecoins pegged to SDRs under the leadership of the IMF, alleviating developing countries' dependence on US dollar stablecoins and their own insufficient technological strength and financial governance capabilities. Finally, it is recommended to promote the integration of stablecoins with the traditional financial system within a controllable range. Due to the advantages of blockchain-based payment and 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). Stablecoins, in addition to being used for payments and remittances, can also 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. my country 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 could explore the establishment of a scientific compliance framework that balances efficiency and security; on the other hand, it could 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."