Editor's Note: Before and after Trump's second term in the White House, his enthusiasm for digital currencies was extraordinary; not only did he receive a large amount of campaign funding from the digital currency sector during his campaign, but he also issued his own virtual currency before becoming President of the United States.

Now, the Trump administration has taken another step forward. On June 17, the U.S. Senate passed the "Guidance and Establishment of the American Stablecoin National Innovation Act" (referred to as the "GENIUS Act"), marking a critical step in the U.S. construction of a regulatory and development policy framework for stablecoins. This act not only has a profound impact on the domestic stablecoin market in the United States, but it will also reshape the global monetary system landscape.

Regarding the impact of digital currencies, especially stablecoins, on the global monetary system, former Deputy Secretary of the Treasury Zhu Guangyao gave a speech at the 2025 China International Issues Forum titled "The World Order and China's Foreign Strategy in the Period of Turbulence and Transformation" held on June 26. Observers Network has been authorized to publish this, for readers' reference.

Zhu Guangyao:

Respected guests, in conjunction with today's conference theme, I would like to give a speech on the evolution of the Bretton Woods system.

2025 is the 80th anniversary of the Chinese people's War of Resistance against Japanese Aggression and the victory of the world anti-fascist war. After the Second World War, the establishment of the United Nations laid the political foundation for the post-war period, which had great historical significance; at the same time, one year before the end of the war, that is, in July 1944, the historically significant Bretton Woods Conference was held in New Hampshire, USA, which laid the foundation for post-war recovery and economic development.

Kaynes and White during the Bretton Woods Conference

This conference established the International Monetary Fund, the World Bank, and the predecessor of the WTO, the General Agreement on Tariffs and Trade, establishing an economic order after the war. These institutions are special agencies of the United Nations. As an important member of the Allied Powers, China participated in and contributed to the establishment of the Bretton Woods system.

When studying the establishment and changes of the Bretton Woods system, including the role of stablecoins, we should place them within the overall framework of the global political and economic landscape. We need to look at the current total scale of the global economy, the development status of major global economies, related trade conditions, and cross-border capital, including the overall international fund settlement situation. Here, the international economic situation is based on data from the IMF, trade conditions are based on WTO data, and capital flows are based on BIS data, all authoritative data.

In 2024, the total scale of the world economy was 110 trillion dollars, with the United States and China being the two largest economies in the world. The size of the U.S. economy was 29.17 trillion dollars, while China's was 18.27 trillion dollars. The statistics published by our country's National Bureau of Statistics show that in 2024, China's GDP was 134.9 trillion yuan, which converted into US dollars is 18.27 trillion dollars, making China the second-largest economy in the world.

Outside of the United States and China, there is no third economy currently exceeding 5 trillion dollars in scale. Germany ranks third with 4.17 trillion dollars, Japan fourth with 4.07 trillion dollars, and India fifth with 3.9 trillion dollars. India has ambitious plans, with Prime Minister Modi stating that India should quickly reach a 5 trillion dollar economic scale and become the second-largest economy in the world, but he did not say who would be the largest economy at that time.

Looking at trade conditions, the total global trade volume in 2024 was 65 trillion dollars, with goods trade at 49 trillion dollars and service trade at 16 trillion dollars. China and the United States have comparable trade data. In 2024, China's service trade exceeded the 1 trillion dollar threshold for the first time, while its goods trade has been the largest in the world for many years, at 6.2 trillion dollars. The total of goods and services trade was 7.2 trillion dollars.

The U.S. goods trade is less than ours, ranking second with a total of 5.4 trillion dollars, but the U.S. service trade amount is higher than China's, at 1.9 trillion dollars, totaling 7.3 trillion dollars, while we have 7.2 trillion dollars. The total trade volume between the U.S. and China accounts for about 11% of the global trade volume, so the WTO says that the U.S. tariff policy affects about 10% of global trade, based on the above data.

Looking at the overall situation of global fund settlements, according to BIS data, the total amount of global fund flows in 2024 was 250 trillion dollars, far exceeding GDP and trade volumes. At the same time, we should note that the settlement amount of stablecoins reached 27.6 trillion dollars that year, exceeding the total transaction volume of MasterCard and Visa in the U.S., according to Deutsche Bank statistics.

Through the analysis of the data on the global economy, trade, and capital flows, we can have a clear concept: in terms of total economic scale, the U.S. still accounts for more than 25% of the world economy, but compared to the proportion of the U.S. GDP in the global economy scale in 1945 when the Second World War ended, it has declined significantly, at that time it was 56%.

It was precisely because the U.S. had an absolute advantage at that time that the post-war global financial system was dominated by the U.S. dollar, and the Bretton Woods system was established based on the U.S. dollar. The important basis of the Bretton Woods system in 1944 was 1 ounce of gold equaling 35 dollars.

However, by 1971, the relative decline in the U.S. economic strength made it impossible for the U.S. to maintain the promise of 1 ounce of gold equaling 35 dollars, and the U.S. dollar was disconnected from gold, which is well known as Nixon's default, marking the end of the first phase of the Bretton Woods system.

IMF and WBG

But the disconnection of the U.S. dollar from gold does not mean the collapse of the Bretton Woods system, because the International Monetary Fund and the World Bank are still in existence. At the same time, in the early and mid-1970s, the oil crisis greatly increased oil prices, causing a shock to the global economy, raising the question of which currency should be used to settle oil transactions, leading to the emergence of the petrodollar. By anchoring to the petrodollar and providing liquidity to the international capital market, the Bretton Woods system entered its second stage.

However, today, the second stage of the Bretton Woods system cannot be maintained. The core issue is that the U.S. national debt is unsustainable. In January this year, it has already broken through its national debt limit of 36 trillion dollars. By March, this figure reached 36.2 trillion dollars, and now the U.S. national debt as a percentage of GDP exceeds 124%. Mr. Dalio of Bridgewater Fund stated clearly that any country whose national debt as a percentage of GDP exceeds 135% means that 40% of its fiscal revenue must be used to pay government bond interest, and the country's finances will face collapse.

American historians have also openly admitted that looking back at world history, any country whose interest expenditure on national debt exceeds its military spending cannot maintain its empire. In 2024, the U.S. interest expenditure on national debt exceeded 1 trillion dollars, while the U.S. military spending was 895 billion dollars, plus the U.S. trade deficit of over 1 trillion dollars, two 1 trillion dollars, making the U.S. national finances face enormous pressure.

Of course, as the world's largest economy and the largest military power, the U.S. is trying every means to transfer the crisis. From the economic field, we need to carefully analyze the four important economic and financial measures taken by the U.S. in June.

The first measure is that the U.S. Treasury repurchased 10 billion U.S. bonds on June 3. The U.S. Treasury has had previous examples of repurchasing U.S. Treasury bonds, but the amount of 10 billion dollars is unprecedented. Then, on June 10, it again repurchased 10 billion dollars, proving that the U.S. Treasury believes the pressure on the national debt is very severe and cannot avoid taking measures.

The Federal Reserve insists on responding to the great uncertainty brought by the tariff policy and reducing the impact on inflation, so it maintains the benchmark interest rate at 4.25% to 4.5% unchanged. Trump was very angry about this, saying that the Federal Reserve has not adjusted the interest rate, and we have to pay an additional 90 billion dollars each year, and he believes that at least a 3% reduction in the interest rate would save 90 billion dollars. However, the Federal Reserve insists on not adjusting the monetary policy, because it needs to cope with the great uncertainty caused by the tariff policy, so the U.S. Treasury had to take action under these circumstances.

The second measure is that the Federal Reserve, while not adjusting monetary policy, makes significant adjustments to regulatory policies in coordination with the U.S. Treasury. This major adjustment is that on June 25, the Federal Reserve Board voted 5:2 to pass an important resolution to adjust the supplementary leverage ratio implemented by U.S. banks.

After the 2008 global financial crisis, in order to strengthen the regulation of the financial system, especially the regulation of "too big to fail" banks, the Basel III agreement passed a series of regulatory resolutions, among which the most important one was the supplementary leverage ratio. The basic concept is that tier 1 capital, which is the equity capital and profits, is the numerator, and the denominator is the bank's total asset exposure, including loans, purchased Treasury bills, and even deposits at the Federal Reserve. All of these are included in the denominator.

This ratio is 3%, and it applies to all large banks, that is, banks with assets exceeding 250 billion dollars. But for systemic risk banks, which are usually referred to as "too big to fail" banks, the leverage ratio is 5%, called the enhanced supplementary leverage ratio. During the 2020 pandemic crisis, the Federal Reserve temporarily adjusted this rule, excluding U.S. Treasury bills from the denominator for a year, but restored it after 2021.

Now, the Federal Reserve has passed this important resolution, which aims to adjust the regulatory policy by removing the U.S. Treasury bills held by banks from the risk exposure, which will release at least 1 trillion dollars. At the same time, the Federal Reserve also requires major banks to propose suggestions on whether the reserves deposited at the Federal Reserve should continue to be part of the denominator. I estimate that there could be another 1 trillion dollars released.

Gold Reserves

The third policy is to adjust the accounting bookkeeping policy. The gold on the asset side of the U.S. Treasury balance sheet, that is, the 8,300 tons of gold held by the U.S. government, is recorded at a standard of 42.22 dollars per ounce of gold, which has never changed since 1974. However, the price of an ounce of gold is now over 3,300 dollars, which is another 1 trillion.

This 1 trillion, as long as the accounting bookkeeping standard is adjusted, that is, adjusted according to the market price, can be done, but whether it is completely used to buy Bitcoin according to Trump's idea, the U.S. side is also studying. However, adjusting the accounting bookkeeping is beyond doubt.

Since 1974, it has been recorded at 42.22 dollars, and the U.S. has its reasons. In the U.S. Treasury balance sheet, gold is on the asset side, and in the Federal Reserve balance sheet, gold is on the liability side, which is offsetting. If calculated at actual value, the 8,300 tons of gold would be worth nearly 1 trillion dollars.

The above three adjustments are strategic, and the strategic adjustment is the U.S. Senate passing the stablecoin bill on June 17, as seen, the President, Vice President, and Treasury Secretary all made policy statements.

Trump said that the U.S. stablecoin bill passed by the Senate will make the United States undeniably the leader of global digital assets. He also asked the House of Representatives to pass it quickly. According to the schedule, the House of Representatives will start discussing it earliest in the week of July 7. Trump said that as soon as you pass it, I will sign it immediately, and try to implement it by August 1.

Vice President Vance clearly stated that stablecoins pegged to the U.S. dollar will be a multiplier for the U.S. economic strength. Through the blockchain payment system, the U.S. dollar can circulate more efficiently and at a lower cost, thus maintaining the U.S. dollar's global dominant position.

Secretary of the Treasury Bensont said that this administration is committed to maintaining and strengthening the U.S. dollar's reserve currency status. Stablecoins supported by U.S. Treasury bills or short-term treasury notes will create a market, expanding the use of the U.S. dollar globally through stablecoins, while also allowing the government's borrowing costs to decrease, effectively controlling national debt. The policy statements of key U.S. officials on stablecoins clearly outline the U.S. policy intentions. This is completely aligned with our study of the third stage of the Bretton Woods system. The U.S. policy considerations are to maintain the U.S. dollar's status as an international reserve currency, maintain the U.S. dollar's global hegemony, and closely link stablecoins with the U.S. comprehensive national strength and the U.S. reduction in national debt costs. Let us briefly look at the characteristics of U.S. dollar stablecoins:

Firstly, all issued U.S. dollar stablecoins must be directly pegged to the U.S. dollar at a 1:1 ratio. And this pegging asset can only be U.S. cash and U.S. Treasury bills with a maturity of less than or equal to 93 days.

I will briefly explain this. It is not that long-term Treasury bills are not allowed, but that the final maturity must be less than 93 days, meaning sufficient liquidity. Deposits and money market funds are entirely high-liquidity U.S. dollar assets. Personally, I think this is the third stage of the Bretton Woods system, where U.S. stablecoins target highly liquid U.S. dollar assets, a characteristic that is very prominent, and must be strictly regulated, with U.S. institutions regulating them, and the issuing institutions must be located in the United States.

Currently, Tether, which is the largest in terms of issuance volume, is issued by an institution located in El Salvador. This is acceptable during the transition period, but after the transition period, it must be adjusted, must meet the U.S. registration requirements, and must comply with all U.S. regulatory policies. This is a long-arm jurisdiction in the new situation, so U.S. dollar stablecoins are strategic for the United States.

Stablecoins Pegged to the U.S. Dollar Will Greatly Change the Global Currency Landscape

We need to carefully analyze the process of the emergence of U.S. dollar stablecoins. A few years ago, Facebook wanted to issue Libra, which was based on a basket of currencies from the IMF, but the U.S. strongly opposed it and also studied central bank digital currencies. The Republican Party's campaign platform resolutely opposed central bank digital currencies. After Trump took office, he signed a presidential executive order, explicitly prohibiting the introduction of central bank digital currencies in the United States.

While recognizing the strategic intent of the U.S. in developing stablecoins that are highly linked to the liquidity of the U.S. dollar, which is to maintain the U.S. dollar's hegemony, we should also carefully study the specific operational methods. The generation of stablecoins indeed follows the development of technological revolutions and innovation. Technological innovation and the technological revolution are the core driving forces and fundamental foundations for the emergence of U.S. dollar stablecoins.

With the development of blockchain technology, real-world assets (RWA), which are assets with physical forms or identifiable rights outside of digital or virtual environments, such as real estate, stocks, bonds, and receivables, are important components of the traditional financial system, with actual economic value and widespread application scenarios.

The core of the change in RWA digitization is to convert assets with actual value into digital tokens through blockchain technology. This process is called asset tokenization, which allows traditional assets to be traded, circulated, and managed on the blockchain. This is a major transformation of the entire financial system.

Stablecoins have all the functions of payment, circulation, and settlement in transactions, which means that blockchain's decentralized characteristics can complete transactions directly between both parties without the need for intermediaries. We need to see that this blockchain is indeed decentralized, but the U.S. has now made a series of legal regulations, making the issuance of U.S. dollar stablecoins strongly centralized.

Do not misunderstand this, especially hoping that our experts do not say that this is decentralized anymore. In fact, it is strongly centralized, and it is a victory of strong centralization. Therefore, we need to pay close attention to this evolution.

The issuance and regulation of fiat stablecoins, whether pegged to the U.S. dollar or other currencies, is not the success of decentralized finance, but the success of national sovereignty. This also poses challenges to countries around the world. What should various countries do?

Because if the U.S. dominates alone, it will completely control the third stage of the Bretton Woods system. Therefore, we need effective policy responses and strong international policy coordination.

That is all my thoughts for today. Thank you!

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