On June 24, the Switzerland-based Bank for International Settlements (BIS) sounded a stark warning for policymakers pushing forward with the adoption of stablecoins — the asset-backed cryptocurrencies fall short of being money and they could pose risks to financial stability if allowed to grow. However, 2025 has been a watershed year of sorts for stablecoins, which are essentially private cryptocurrencies linked to an actual asset, usually the US dollar.
Days earlier, on June 17, the US Senate passed the Guiding and Establishing National Innovation for US Stablecoins Act (GENIUS Act). A week prior to that, the Digital Asset Basic Act bill was introduced in South Korea’s National Assembly. Under this bill, domestic firms can issue their own stablecoins pegged to the South Korean won. In May, Hong Kong ‘s Legislative Council passed a stablecoin legislation to establish a licensing regime for local ‘fiat-referenced stablecoins’ issuers.
To be sure, new laws backing stablecoins underscore the need to ensure the protection of the general public and compliance with anti-money laundering requirements, among others. According to Eddie Yue, chief executive of the Hong Kong Monetary Authority, “a robust and fit-for-purpose regulatory environment would provide favourable conditions to support the healthy, responsible, and sustainable development of Hong Kong’s stablecoin and the broader digital asset ecosystem.”
But who needs stablecoins anyway?
Stablecoins have a limited use case
While being pegged to a currency such as the US dollar can reduce the volatility in the value of a stablecoin, experts are unsure about what the cryptocurrency has to offer.
Consider the case of South Korea, where there seems to be little reason for stablecoins backed by the won. “Given the limited global role of the KRW (Korean won) and the strength of existing domestic payment infrastructure, the immediate justification for the issuance of KRW stablecoins appears limited,” Dong Beom Choi, Associate Professor of Finance at Seoul National University, told Nomura last week.
According to the BIS, while stablecoins display “some attributes of money”, they were “…unsound money, with real societal costs… that fail the triple test of singleness, elasticity and integrity.” The BIS also has a more fundamental problem with stablecoins. It pointed out that there is an “inherent tension between stablecoin issuers’ ability to fully uphold their promise of stability and their pursuit of a profitable business model.”
The de-dollarisation angle
Despite the warnings, lawmakers in the West as well as the East are moving ahead with frameworks for the issuance of private stablecoins. However, their objective may not necessarily be so much about boosting crypto and digital ecosystems. Instead, they may be looking to push demand for their respective national currencies, such as the Korean won and the Chinese yuan.
In late June, Song Ke, executive VP at the Renmin University’s Shenzhen Research Institute, identified the reason behind Hong Kong’s stablecoin push as an “effort to elevate the global status of the Chinese renminbi in the digital era”. Writing in the China Daily, Ke said the Hong Kong law can serve as a pilot for mainland China and the development of stablecoins connected to the Hong Kong dollar “could also play a complementary role in the internationalisation of the renminbi”.
At present, Tether and USDC, the top two stablecoins globally, both pegged to the US dollar, make up 83 per cent of the $265 billion total stablecoin market.
Continuing American dollar dominance
Reduced global reliance on the US dollar would be bad news for the Trump administration — the greenback has weakened the most in the first six months of 2025 since the early 1970s. The administration is cognisant of ground realities and understands the importance of crypto and stablecoins in ensuring that the dollar remains the global reserve currency.
“A thriving stablecoin ecosystem will drive demand from the private sector for US Treasuries, which back stablecoins. This newfound demand could lower government borrowing costs and help rein in the national debt,” US Treasury Secretary Scott Bessent posted on X on June 17, going on to add two days later that “stablecoins can reinforce dollar supremacy”.
The US, China, and South Korea are not alone in trying to create global demand for their currencies — India, too, has been doing so, albeit through a different route on account of the Reserve Bank of India’s (RBI) opposition to stablecoins. Apart from its well-known criticism of “not even a tulip” backing private cryptocurrencies, the RBI views an increased acceptance of US dollar-linked private cryptocurrencies resulting in dollarisation of the Indian economy — a situation where the US dollar becomes increasingly acceptable in the country and begins to substitute the rupee. This can lead to domestic policies not having their desired impact because the government or the RBI cannot control the supply of the US dollar.
As such, the Indian government has looked to popularise the UPI as a payment mechanism and model around the world. The central government is working to encourage international trade settlement in rupees, while the RBI is pressing hard with multiple use-cases for its Central Bank Digital Currency (CBDC). This is in stark contrast with South Korea. On June 30, reports emerged that the Bank of Korea, the country’s central bank, had suspended its CBDC test project. It is worth recalling that the Korean government had introduced the Digital Asset Basic Act earlier during the same month.
(US$1 equalled 1,374.411 South Korean Won, 7.179 Chinese Yuan Renminbi, and 7.849 Hong Kong Dollar as of 9:06 AM IST on July 9, 2025)
Donald Trump’s executive order also bans Central Bank Digital Currency (CBDC). (File photo) 
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