A stablecoin bill moving through the U.S. Congress is creating a regulatory pathway for private companies to issue digital currencies, marking a major victory for crypto advocates who have long voiced the benefits of utilising blockchain technology.
Short for Guiding and Establishing National Innovation for U.S. Stablecoins, the GENIUS Act facilitates a regulatory framework for digital tokens whose value is pegged to a fiat currency or other liquid assets such as government bonds. After passing through the Senate, the GENIUS Act now heads to the House floor, where some iteration is expected to be approved before it’s sent to the president’s desk for his signature.
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The bill’s advancement represents a watershed moment for crypto advocates as the ruling would allow private companies, including fintechs, banks, and retail businesses, to issue their own stablecoins, enabling traditional businesses to participate in the digital crypto economy. U.S. Treasury Secretary Scott Bessent believes that bank-issued stablecoins could ultimately absorb up to $2 trillion in government debt.
The size of the stablecoin market
Though the bill lends credence to the credibility for digital money, stablecoins remain in their infancy. The combined turnover of prominent issuers Tether and Circle accounts for just 1.2 percent of global foreign exchange turnover and 1.1 percent of the U.S. M1 money supply, a category which includes all currency in circulation and those held in demand deposits and checking accounts, according to estimates by Morgan Stanley.
Compared to the cryptocurrency market cap of $3.3 trillion, the stablecoin market currently stands at around $250 billion. But driven by organic demand and a favourable policy backdrop, analysts suggest its potential value could range between $400 billion and $1.6 trillion, with Secretary Bessent projecting that the asset class could reach as high as $3.7 trillion by the end of the decade.
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While stablecoin-driven demand for U.S. Treasuries benefits a policy agenda that includes extending tax cuts and increasing the fiscal deficit at a time when borrowing costs remain elevated, economists argue that much of that capital would likely originate from other liquid accounts, such as money market funds, which already hold U.S. debt and thereby limiting the incremental demand.
Hong Kong’s digital hub ambitions
The Senate’s approval of the GENIUS Act comes a month after Hong Kong passed its own Stablecoin Bill – and follows on the heels of remarks made at the Lujiazui Forum made by the People’s Bank of China (PBoC) governor Pan Gongsheng, who called for a multipolar currency system, highlighting the digital yuan and stablecoins as proposed viable alternatives in cross-border settlements.
Pan’s comments stand as a noticeable shift from his predecessors, says Zen Fong, co-founder of CanvasLand Technology & OriginTrail APAC Partner, speaking to Macao News, noting that private stablecoins remain banned for domestic use in mainland China.
Integrating Pan’s stablecoin endorsement with an Hong Kong dollar (HKD) backed stablecoin reserve pegged to a basket of U.S., Hong Kong, and offshore RMB (CNH) currencies could offer the balanced approach the PBoC governor envisions, Fong argues, noting that this would also strengthen the central bank’s broader ambitions to increase RMB use.
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Effective 1 August, Hong Kong will become one of the first jurisdictions in the world to adopt dedicated stablecoin legislation. Anchored by Hong Kong’s deep liquidity pool of offshore yuan, CNH-backed stablecoins would validate real-world cross border settlements without violating mainland capital controls or affecting onshore financial stability, cites Morgan Stanley, adding that the rise of CNH usage would also boost demand for renminbi (RMB) denominated assets, such as offshore RMB government bonds and PBoC bills.
But given the dominance of US dollar-pegged stablecoins, Morgan Stanley sees PBoC’s interest in leveraging stablecoins to internationalise the RMB as being relatively negligible if they are issued without meaningful economic reforms. The GENIUS Act is more likely to reinforce the dollar’s dominance, according to the bank, underscoring that PBoC’s interest in exploring Hong Kong as a sandbox for future payment alternatives is to mitigate the risk of falling behind the digital infrastructure race.
