A Comprehensive Guide to Stablecoins and Central Bank Digital Currencies

Author: Mask

A currency war without gunpowder is quietly unfolding on the blockchain.

When Kenyan coffee farmers receive USDT payments from German buyers via their mobile phones, when Argentine residents use dollar stablecoins to replace their plummeting local currency savings, and when Hong Kong citizens exchange digital Hong Kong dollar stablecoins at compliant exchanges. Meanwhile, in Beijing’s Xidan Shopping Mall, Ms. Li used the “tap” function of digital RMB to offline purchase breakfast, all without the need for a network, with fund security backed by national credit. — These scenarios reflect a profound transformation of the global monetary system, with stablecoins and central bank digital currencies as the two core forms of digital currency, reshaping the fundamental landscape of financial infrastructure.

These two seemingly similar digital payment tools represent two paths of transformation in the global monetary system: stablecoins led by private institutions and central bank digital currencies (CBDC) issued by sovereign states. While they converge in technological form, they fundamentally differ in their issuance logic and financial essence.

On August 1, 2025, the Hong Kong “Stablecoin Regulation” will officially come into effect, marking an important milestone in global stablecoin regulation. At the same time, Pan Gongsheng, the governor of the People’s Bank of China, publicly acknowledged the technological value of stablecoins for the first time at the Lujiazui Forum, pointing out that they “reshape the traditional payment system from the ground up.” The shift in policy direction indicates that the development of digital currency has entered a new stage.

I. The Dual-Track Evolution of Currency Digitization

To understand the current transformation of the currency landscape, it is essential to clarify the fundamental differences between two core forms of digital currency, stablecoins and central bank digital currencies represent distinctly different monetary philosophies and development paths.

Stablecoins are cryptocurrencies with relatively stable prices, typically issued by private institutions and pegged to fiat currencies or other stable assets. They emerged in 2014 when the Tether company, formed by the cryptocurrency exchange Bitfinex, issued USDT pegged 1:1 to the US dollar, with the original intention of providing a “safe harbor” for the highly volatile cryptocurrency market.

On a technical level, stablecoins enable peer-to-peer transactions based on blockchain technology, allowing for instant transfers through electronic wallets during payments, thus avoiding the cumbersome settlement process of traditional banking systems. Currently, the global stablecoin market has surpassed $250 billion, with the two major US dollar stablecoins, USDT and USDC, accounting for over 90% of the market share.

Central Bank Digital Currency (CBDC) represents a digital extension of national sovereignty. China’s digital renminbi (e-CNY), the Bahama’s “sand dollar”, and Sweden’s e-krona all fall into this category. Unlike stablecoins, central bank digital currencies are 100% backed by national credit and are essentially a digital form of M0 (cash in circulation). On the central bank’s balance sheet, each unit of digital currency corresponds to an equal amount of central bank liabilities, with no default risk.

The reasons for the birth of central bank digital currencies are threefold: to enhance the efficiency of the payment system, to strengthen the transmission mechanism of monetary policy, and most importantly—to maintain national financial sovereignty. Against the backdrop of the rise of cryptocurrencies and private stablecoins, central banks around the world have no choice but to consolidate their currency issuance rights through technological means.

2. Technical Convergence and Functional Differentiation

Although stablecoins and central bank digital currencies have fundamental differences in their issuing entities and value logic, they share an astonishing homology in their technical architecture.

Both are based on blockchain or distributed ledger technology. Stablecoins are mainly issued on public chains, ensuring decentralization and anonymity; central bank digital currencies often adopt a consortium chain architecture, balancing efficiency and security within a controllable range. Taking the digital yuan as an example, in its “dual-layer operation system,” the central bank is responsible for issuing, while commercial banks are responsible for exchange and circulation, maintaining centralized management while using distributed ledgers to enhance efficiency.

The paths of the two are vastly different in terms of value stabilization mechanisms. Stablecoins rely on sufficient reserve assets (such as USD and US Treasuries) and instant arbitrage mechanisms to maintain price stability. Compliant stablecoins like USDC maintain an over-reserve of 102%-105% and ensure transparency through independent audits. However, regulation is still in the process of improvement, with varying requirements across different jurisdictions. While USDC and others actively publish audit reports, Tether (USDT) has long been questioned due to insufficient reserve transparency.

When the market price deviates from the pegged value, authorized participants can arbitrage through the minting/burning mechanism, keeping the volatility within ±0.3%.

Central bank digital currency directly inherits the backing of national credit, and its value stability is equivalent to physical cash. On the balance sheet of the People’s Bank of China, each 1 yuan of digital renminbi corresponds to an equal amount of central bank liabilities, possessing unlimited legal payment ability, fundamentally avoiding the risk of price fluctuations. From the very beginning of its design, it has been placed under the full-process supervision of the central bank, strictly complying with regulations such as anti-money laundering and monetary policy, and has controllable anonymity features (privacy protection for small transactions, traceability for large transactions).

In terms of application scenarios, the two have formed a natural division of labor:

Stablecoins: Primarily operate on public chains like Ethereum, relying on network consensus mechanisms. They face challenges such as depegging risks (e.g., the collapse of UST algorithmic stablecoins), reserve asset risks, and smart contract vulnerabilities.

Become a “universal medium of exchange” with the advantages of cross-border payments. Its annual on-chain settlement amount has exceeded $25 trillion, equivalent to the total transactions of traditional card organizations Visa and Mastercard. It accounts for over 90% of DeFi lending, is the preferred settlement tool for NFT and RWA transactions, and connects traditional assets with the blockchain ecosystem.

Central Bank Digital Currency: Adopts a hybrid architecture (such as the “central bank-commercial bank” dual-layer operation of the digital yuan), supports dual offline payments, core risks shift to privacy protection and financial sovereignty aspects, such as the potential disintermediation of commercial banks.

Focusing on domestic retail payment scenarios, achieving inclusive payments under sovereign control (such as digital RMB covering utility payments in 28 cities in China), with a key application in high-frequency domestic scenarios such as livelihood consumption and government services, the core goal is to enhance financial inclusiveness and the efficiency of monetary policy transmission, and to achieve precise fiscal subsidy distribution and targeted liquidity adjustment.

3. Game and Symbiosis: The Core Battlefield of the New Currency War

The current global monetary system is undergoing profound reconstruction, forming a complex relationship of competition and complementarity between stablecoins and central bank digital currencies. The core of this “new currency war” is essentially a dual game of monetary dominance and technological routes.

1. The digital extension of the U.S. dollar hegemony.

The US dollar stablecoin has become a new tool to consolidate the dominance of the dollar. 95% of global stablecoins are US dollar stablecoins, far exceeding the dollar’s 50% share in global payments. These stablecoins invest 80% of their reserve funds in US Treasury bonds, making them one of the top 20 holders of US debt.

The “GENIUS Act” passed in the U.S. in June 2025 further requires that stablecoins issued in the U.S. must be 100% backed by cash in U.S. dollars or ultra-short-term Treasury bills maturing within 93 days. This policy cleverly transforms stablecoins into a vehicle for “digital dollars,” compensating for the reduction of U.S. debt holdings by non-U.S. sovereign entities, while also strengthening the status of the dollar through the global circulation of stablecoins.

U.S. Treasury Secretary Scott Basset stated frankly: “Dollar stablecoins not only expand the use of the dollar, but also support the continued demand for U.S. Treasury securities.”

2. The leapfrog of the internationalization of the Renminbi

In the face of the strong expansion of the US dollar stablecoin, China has adopted a “dual-track parallel” strategy: on one hand, deepening the pilot program of the digital yuan domestically; on the other hand, actively laying out offshore RMB stablecoins in Hong Kong, exploring new paths for the internationalization of the RMB.

The Hong Kong “Stablecoin Regulations” will come into effect on August 1, 2025, requiring stablecoins to have a locally registered issuer. Offshore issuance of Hong Kong dollar stablecoins must apply for a license from the Monetary Authority. This system design creates a compliant development space for offshore RMB stablecoins, and the Shanghai-Hong Kong joint action plan explicitly proposes the establishment of a “global asset allocation center for RMB assets” to strengthen digital financial cooperation.

The strategic value of developing offshore RMB stablecoins lies in: bypassing the constraints of the SWIFT system while avoiding direct impacts on mainland monetary policy and capital controls. According to IMF data, the share of the US dollar in global official reserves dropped to a historic low of 57.8% in the fourth quarter of 2024, providing a time window for the internationalization of the RMB.

3. Inclusive Finance and Sovereign Challenges

In emerging markets, stablecoins exhibit a more complex interaction with central bank digital currencies. For residents of high-inflation countries like Argentina and Turkey, USD stablecoins have become “digital dollar deposits,” with a penetration rate exceeding 30%, effectively helping the public avoid the risk of local currency devaluation.

But this kind of “spontaneous dollarization” also brings concerns about the weakening of monetary sovereignty. When residents and businesses in a country can obtain dollar stablecoins without the need for a U.S. bank account, the effectiveness of that country’s central bank’s monetary policy transmission will be greatly reduced, and it will become more difficult to control capital outflows. The Bank for International Settlements warns: stablecoins could become a new variable for global financial stability.

IV. Future Trends: From Competition to Integration

Looking to the future, the development of stablecoins and central bank digital currencies will present four major trends:

1. Compliance becomes a prerequisite for survival.

The global regulatory framework is rapidly improving. In addition to Hong Kong’s Stablecoin Ordinance, the Trump administration actively promoted the Genius Act, and the EU’s Market in Crypto-Assets Regulation (MiCA) has been implemented. Compliance has become a core element in the issuance and operation of stablecoins.

The crisis of USDC de-pegging triggered by the collapse of Silicon Valley Bank (which once dropped to $0.87) serves as a warning: stablecoins lacking transparent reserve management carry systemic risks. New regulatory requirements focus on three key aspects: asset custody, reserve audits, and redemption guarantees. Leading stablecoin issuers have begun to disclose their reserve composition on a monthly basis.

2, The challenge of a multipolar pattern to the dollar hegemony

The dominance of a single dollar is being broken. Hong Kong is promoting the issuance of a Hong Kong dollar stablecoin, while Bahrain, Singapore, and other regions are also developing local fiat-backed stablecoins, and regional stablecoin solutions are rapidly emerging in Southeast Asia and Latin America, creating conditions for the rise of non-dollar stablecoins.

Tokenization of real-world assets (RWA) provides new momentum for diversification. By June 2025, the RWA scale is expected to grow to $24.4 billion, accounting for 10% of the stablecoin market value. Diversified reserve assets such as gold, commodities, and even real estate are becoming the value support for emerging stablecoins.

3. Traditional financial institutions accelerate entry

After JPMorgan Chase launched the stablecoin JPM Coin, globally systemically important banks such as Standard Chartered and Sumitomo Mitsui began to venture into stablecoin services. BNY Mellon expanded its services for clients to buy/sell stablecoins, marking the entry of traditional finance into a deep integration with crypto assets.

This integration not only changes the form of financial services but also reconstructs the profit model. Tether (the issuer of USDT) achieved a profit of 14.3 billion dollars in 2024 with only 150 employees, averaging nearly 100 million dollars in profit per person, an extremely high efficiency that attracts traditional financial institutions to accelerate their entry.

4. The integration of technology gives rise to new types of currency tools.

The most noteworthy trend is the technological integration of central bank digital currencies and stablecoins. Pan Gongsheng, the Governor of the People’s Bank of China, has proposed thoughts on the “integrated development of digital renminbi and stablecoins,” releasing positive policy signals.

Possible integration paths include: the integration of central bank digital currencies into public chain ecosystems to enhance cross-border capabilities; compliant stablecoins serving as cross-chain exchange bridges for CBDCs; and even the emergence of “hybrid stablecoins” partially backed by central bank reserves. The Hong Kong Monetary Authority has established three departments to manage stablecoins, central bank digital currencies, and deposit tokenization, exploring institutional integration experiences.

Global Restructuring of Currency Functions:

• Value storage: Sovereign CBDC plays a core role (national credit guarantee)

• Trading medium: Compliant stablecoins dominate cross-border and on-chain scenarios (high efficiency advantage)

• Valuation unit: Sovereign currency remains the main body, but stablecoin pricing may occur in specific fields (such as bulk commodity trade).

V. Conclusion: A Revolution to Reshape Financial Order

Looking back at the history of currency evolution, from shells to metal coins, from paper money to electronic payments, each transformation has been accompanied by a restructuring of power dynamics. The competition and cooperation between stablecoins and central bank digital currencies fundamentally represent a new collision between national sovereignty and market forces in the digital age.

The winners of this transformation have yet to be determined, but the direction is already clear: The future currency system will be an ecosystem where multiple levels and forms coexist, with central bank digital currencies dominating the digitization of sovereign currencies, while stablecoins serve as a liquidity bridge connecting traditional finance and the crypto world. The integration of the two will continue to deepen in areas such as cross-border payments and inclusive finance.

As an experimental field for offshore RMB stablecoins, Hong Kong, along with Shanghai as a pioneer of digital RMB, is jointly exploring a development path that both maintains financial sovereignty and embraces technological innovation. As transaction settlements on the blockchain shorten from days to seconds, and the cost of cross-border payments drops from 6.35% to nearly zero, the essence of financial services is being redefined.

For ordinary users, the key is to choose rationally based on the scenario requirements: CBDC is the first choice for daily consumption and small payments to ensure safety; for cross-border trade or on-chain investments, regulated and audited stablecoins can be used, but it is necessary to always pay attention to the transparency of the issuer’s reserves. After all, in the era of digital currency, understanding “whose promise money is” is more important than caring about “which wallet the money is in.”

The new currency war has no smoke, but it will profoundly change everyone’s wallet and the landscape of the world economy. The only certainty is that the wave of currency digitization will not turn back, and understanding the symbiotic evolution of stablecoins and central bank digital currencies will become the key to grasping the future flow of wealth.