Stablecoin Legislation: Savior of US Treasuries or Financial Bomb?

The United States is advancing legislation known as the "Beautiful Act" aimed at incorporating stablecoins into the national debt financing system. This act forms a policy combination with the "GENIUS Act," which requires that USD stablecoins must be fully backed by cash, US Treasury bonds, or bank deposits as reserves. This marks a significant shift in the regulation of stablecoins.

The main goals of the bill include: alleviating pressure on U.S. debt, consolidating the dominance of the dollar, and promoting expectations for interest rate cuts. It is predicted that by 2028, the global stablecoin market value may reach $2 trillion, most of which could flow into the U.S. debt market, providing new financing channels for the U.S. fiscal deficit.

Faced with 36 trillion dollars in federal debt, the U.S. government urgently needs to open new financing channels. The rapid growth of the stablecoin market has attracted the attention of policymakers. It is expected that by 2030, the market value of stablecoins could reach between 1.6 to 3.7 trillion dollars, with a significant portion likely allocated to U.S. Treasury bonds.

This mechanism may have some impacts, including distorting financial markets and weakening capital controls in emerging markets. The surge in short-term demand for US Treasury bonds may lower yields, while the cross-border flow of stablecoins may bypass the traditional banking system.

The core design of the bill requires stablecoin issuers to use the funds from users purchasing stablecoins to buy US Treasury bonds. This not only meets compliance requirements but also achieves fiscal financing goals. A regulatory tiered system may accelerate market concentration, as the market is currently dominated by a few large issuers.

Stablecoins are highly anticipated and may become an important tool to alleviate the supply pressure of U.S. Treasuries. However, stablecoins primarily anchor short-term U.S. Treasuries, and their help in addressing the supply-demand contradictions of long-term U.S. Treasuries is limited.

The underlying strategy of the bill lies in the digital upgrade of dollar hegemony. Most stablecoins globally are pegged to the dollar, creating a "shadow dollar network." This mechanism could change the international settlement system and realize the upgrade of the dollar's "digital hegemony."

However, this mechanism also carries potential risks. If there is a large-scale redemption, it could trigger a death spiral between U.S. Treasuries and stablecoins. The risks of decentralized finance may be amplified, and once the value of the underlying assets plummets, it could lead to a chain reaction. Additionally, this could affect the independence of monetary policy.

In response to actions taken by the United States, the world is forming different strategies. Some countries choose to integrate with U.S. regulations, while others seek innovation or alternatives. The international monetary system may evolve towards a diversified currency alliance, competition among digital currencies, or extreme fragmentation.

As the bill progresses, the Federal Reserve is expected to face pressure to cut interest rates, and the dollar may weaken. By 2030, when stablecoins hold a large amount of U.S. Treasury bonds, the global financial system may have completed its on-chain restructuring. This technological revolution is reshaping the global economic order, and its impact will be profound and far-reaching.