On July 18 local time, U.S. President Donald Trump officially signed the "Guiding and Establishing the National Stablecoin Innovation Act" (commonly referred to as the "Genius Act") at the White House, marking the first time the United States has formally established a regulatory framework for digital stablecoins.

In an exclusive interview with National Business Daily (NBD), Dr. Bao Hong, Associate Dean at the Institute for International Affairs, The Chinese University of Hong Kong, Shenzhen, noted that Trump's strong push for the legislation reflects four underlying objectives. By fostering a compliant ecosystem for U.S. dollar-backed stablecoins, the U.S. aims to expand the global reach of the dollar in the digital realm.

Bao emphasized that while the institutionalization of stablecoins could reshape global payment systems, regulators should remain vigilant about their potential financial risks—particularly the threat of currency substitution posed by U.S. dollar stablecoins.

Trump's Stablecoin Push: Four Strategic Motives Behind the Legislation

NBD: How do you assess the significance of the Genius Act and related legislation?

Bao Hong: Since U.S. dollar-backed stablecoins first emerged in 2018, the market has seen explosive growth, surpassing $100 billion by 2020. In the few months since Trump returned to power, the market has added another $100 billion. This shows that expectations for regulatory clarity have already spurred significant momentum in the industry.

NBD: Why is Trump so eager to promote stablecoin legislation?

Bao Hong: I believe there are four primary reasons:

First, Trump's personal interest. During his first term, Trump was largely opposed to cryptocurrencies. But after losing his 2020 re-election bid, his fundraising capacity took a hit. In 2023, he began issuing NFTs (non-fungible tokens) to raise funds and accepted significant support and lobbying from crypto groups in the 2024 election. Data shows that lobbying from the crypto sector in this election cycle has surpassed that of oil and biopharma industries. Trump is now also personally involved in crypto ventures, which have generated returns more rapidly than many of his traditional businesses.

Second, U.S. national interest. Dollar-denominated stablecoins reinforce the dollar’s dominance globally. These stablecoins now occupy a greater share of the crypto market than the dollar itself holds in global reserve currency status. Supporting stablecoin development is essentially a strategy to consolidate the dollar's monopoly in the digital sphere. Federal Reserve Governor Christopher Waller noted back in 2021 that the expansion of crypto trading and market cap only increases global demand for the dollar.

By building a compliant U.S. dollar stablecoin ecosystem, the U.S. can extend its monetary influence into digital finance, further entrenching the dollar's role as the world's reserve currency. Notably, issuing stablecoins in the digital realm allows U.S. institutions to expand dollar liquidity and global influence without enlarging the Fed's balance sheet or triggering inflation in the real economy.

Third, U.S. Treasury debt management. Stablecoin issuers operate like narrow banks and must provide 100% reserve backing. These reserves are often invested in short-term U.S. Treasuries. As of now, stablecoin reserves exceed $250 billion. Treasury Secretary Janet Yellen has stated that this figure could reach $2 trillion within 3 to 5 years—comparable to the holdings of a major sovereign creditor. This sustained demand will help drive down Treasury yields and reduce the government's borrowing costs.

Fourth, promoting digital financial infrastructure. As foundational infrastructure for digital finance, stablecoins are spurring the development of blockchain technologies and digital finance in the U.S. Most new blockchain projects are funded through U.S. dollar stablecoins. If stablecoin adoption continues to grow, the U.S. will solidify its leadership in digital finance and blockchain—potentially shaping global standards in the years to come. From a geopolitical standpoint, the U.S. promotion of regulated dollar stablecoins is a strategic move to compete with emerging market central bank digital currencies (CBDCs) for future dominance in global digital payments and settlement.

Impacts on the Monetary System: Minimal in the Short Term, Potentially Disruptive in the Long Run

Photo/VCG

NBD: Will stablecoins pose a disruptive threat to the existing monetary system?

Bao Hong: The impact of stablecoins on the monetary system will be gradual. In the short term, significant changes are unlikely. The current global monetary system is still centered around a U.S. dollar-dominated financial order. Without fundamental changes to fiat currencies themselves, it's difficult for stablecoins to overturn the existing framework.

However, in the long run, stablecoins could indeed disrupt the system—especially as the integration between crypto assets and the real world deepens. Only then will their influence on the monetary order become more apparent.

NBD: If more corporations enter the stablecoin space and attract large-scale capital, could this lead to systemic risks similar to the 2008 shadow banking crisis?

Bao Hong: If the regulatory provisions outlined in the Genius Act are fully implemented, concerns about shadow banking risks would be largely mitigated. The requirement for 100% reserve backing means that issuers cannot engage in public lending, fundamentally limiting leverage.

That said, since stablecoins are embedded within the broader crypto ecosystem, their reserves are often linked to other volatile digital assets like Bitcoin. If those underlying assets face major sell-offs or redemption pressures, the resulting shockwaves could trigger contagion effects. For instance, after the 2022 collapse of FTX, Tether (a U.S. dollar stablecoin) briefly lost its peg to the dollar.

How Should Emerging Economies Respond?

Photo/Xiao Shiqing (NBD)

NBD: China is currently advancing its digital RMB initiative. What are the key differences between central bank digital currencies (CBDCs) and stablecoins issued by private enterprises?

Bao Hong: From a user's perspective, there's little difference between the two—they are both forms of electronic payment. But from a financial and systemic standpoint, the distinction is significant. A central bank digital currency is backed by the sovereign credit of the central bank, while stablecoins issued by private companies rely on corporate guarantees to users, meaning they occupy very different tiers of creditworthiness.

Moreover, when it comes to cross-border usage, official digital currencies involve questions of national sovereignty. For example, any interaction between the digital RMB and the digital euro would require systems-level interoperability or currency agreements—both of which are time-consuming and costly. In contrast, enterprise-issued stablecoins face no such constraints.

NBD: If a future stablecoin ecosystem evolves into a model dominated by the U.S. dollar and multinational corporations, what risks could this pose to financial security and monetary sovereignty?

Bao Hong: This would present common challenges for many countries. For instance, Meta once proposed the "Libra" project in 2020, aiming to anchor a stablecoin to the U.S. dollar and link it with its vast user base. However, governments around the world swiftly joined forces to shut it down.

(Editor's note: The Libra project sparked widespread opposition from regulatory authorities in the U.S., EU, and other countries. Concerns focused on monetary sovereignty, financial stability, privacy, and antitrust issues. Then-French Finance Minister Bruno Le Maire explicitly stated that the project posed a threat to the EU's "monetary sovereignty".)

For non-dollar economies, one of the first challenges would be losing ground in cross-border payments, as blockchain-based systems offer efficiency and scale advantages that traditional systems struggle to match. Additionally, stablecoins could become a new channel for capital flight.

Developing countries facing high inflation would be particularly vulnerable to currency substitution risks, potentially undermining monetary policy and financial stability.

That said, China has shown strong performance in recent years in terms of inflation control and exchange rate stability, so it is relatively well insulated from such threats.

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