THE FUTURE OF STABLE CURRENCIES AND PAYMENTS: EVIDENCE FROM FINANCIAL MARKETS

AuthorAlexander Copestake, Cage Englander, Maria Soledad Martinez Peria, Germán Villagas-Baer

SourceIMF

Original Wang Ka Yee

 

Introduction

since the issuance of the bitcoin white paper, the question of whether encrypted assets can be used extensively for legal payments has been a contentious one. the reality, however, is that the use of bitcoin for payment remains concentrated in illicit transactions, and that supporters of stablecoins, while predicting that they will be used on a large scale, continue to believe that the main function of encrypted assets is crime。

An empirical assessment of the potential of stable currencies in the area of payments faces a triple challenge。

1. Network effects:The adoption of new payment technologies is often slow to be rolled out at an early stage owing to network effects and potential users tend to wait for enough people to use them first。

2. False transactions:Less than 10 per cent of the stable currency transactions recorded on the block chain are between real users, most of which are robotic activities or the rebalancing of internal accounts on the same exchange。

3. Motive unknown:Area chain data per se do not reveal whether a transaction is a payment for goods and services or an investment act。

In view of these difficulties, this paper infers the prospect of a stable currency payment by looking at the changes in the valuation of existing listed paying enterprises in the financial market. Stock markets have a predictive capacity to respond to shocks, and investors in publicly traded paying firms must judge their future competitive environment, while the response to the news of the stabilization currency is a reflection of the expectations of the stabilization currency。

Theoretical framework: how a stable currency affects a publicly traded paying enterprise

If the stabilization currency is widely used in payments, it will affect the future cash flow of the companies listed for payment in two main ways:

• Increased competition:The public block chain, which is a global open-access book, lowers the threshold for facilities needed to provide payment services. New entrants can provide payment services on a large scale in stable currency and end-users can also make point-to-point payments, thus bypassing the listed paying enterprises and reducing their profits。

• Cost reduction:Enterprises themselves can use stable currencies to reduce marginal costs paid. In fact, the stabilization currency has become a relatively cheap means of transferring funds, and any settlement of any size can be done at a cost of less than 0.01 in less than a second。

On the basis of the above, the author proposes four hypotheses:

• Hypothetical one:Financial markets are expected to play an important role in payments, and the impact of “increased competition” dominates, so that policy shocks that support the use of stable currencies will reduce the market value of paying firms。

• Hypothetical 2:Cross-border payments are slower and more expensive than domestic payments, and the block-chain infrastructure that underpins the stable currency is naturally border-free, so enterprises that focus on cross-border payments will face greater competitive pressures。

• Hypothet three:Strong network effects benefit and provide competitive protection to payment network platforms (e.g. Visa, PayPal)。

• Hypothesis four:Payment firms that have been involved earlier in block chain technology are more vulnerable to new opportunities or competition。

In relation to the expected relationship to market prices, the authors also considered the impact of some of the expected results on the estimates. When a policy shock has been foreseen in part by the market, immediate price changes at the moment do not reflect the full impact of the policy. Using the methodology of Snowberg et al., predicting market access estimates of the probability of policy adoption, the observed causal effects are divided by probability-updating magnitudes to reverse the full effect of the policy。

Empirical research

The evidence here focuses on United States Senate Act No. 1582The Genius Act(GENIUS Act) The Act establishes the first federal regulatory framework for a stable currency in the United States. The author focused on the change in stock prices within 10 hours of the final vote of the Chamber of Deputies on 17 July 2025。

This incident has three advantages: first, the vote took place in Congress.”Encryption WeekDuring Crypto Week, market interest was high, and the genius bill was the only encrypted bill of the week; second, the House of Representatives vote was the last critical step before the law, which was passed by the Senate and publicly supported by the President; and third, the result of the vote was difficult to determine in advance, with party and party divisions。

Data and regression settings

The study used Bloomberg HF stock price data to cover 35 United States-listed paying enterprises, other financial industry enterprises and standard 500 non-financial enterprises. The author divides the payment business intoCross-border payment enterprises, network operators and three sub-groups involved in encrypted assets. The benchmark reverts to a double differential model, comparing the difference between the share price of the paying enterprise and that of other financial enterprises before and after the vote at 15 minutes intervals, controlling the firm ' s and time-fixing effects, and the standard miscalculating the double grouping of enterprises and periods。

Baseline regression result

Within five hours of voting, there were no significant differences in the evolution of the stock prices of the two groups of enterprises, and a parallel trend assumption was adopted. After the vote, the average share price paid to an enterprise fell by about 0.75 percentage points (at a significant level of 1 per cent) in relation to other financial enterprises, while the weighted market value fell by about 1.3 percentage points, corresponding to a market value loss of about $21.5 billion。

Figure 1: Changes in the market value of enterprises during the passage of the genius bill in the House of Representatives Table 1: Average return on the difference between paying companies and other financial companies

Since the market has partially anticipated the passage of the bill, the immediate response described above is not the full policy effect. Using Polymarket data, the author shows an implicit pre-voting probability of about 93 per cent and close to 100 per cent after the vote. As a result, the bill had reduced the total market value of publicly traded paying enterprises by about 18 per cent, or about $300 billion. The robustness test showed that this result was consistent with the use of alternative control groups, control of trends in the differentiation of business characteristics, adjustment of the event window (4 to 48 hours), consolidation of all five legislative votes, and exclusion of interference with another encrypted legislation (H.R.3633) adopted the same year. The placebo tests also confirmed the specificity of the results。

Heterogeneity Analysis

In line with hypothesis 2, the share price of cross-border payment enterprises fell significantly more than that of other paying enterprises, with an expected adjustment of about 27 per cent in market value and a significant decline in all cross-border payment enterprises in the sample. In line with the hypothesis, payment network platforms (such as Visa, PayPal) did not show a significant decline in market value, with returns significantly higher than the average of paying firms, indicating that the network effect was effective against stable currency competition. Consistent with the hypothesis, enterprises involved in encrypted assets have likewise not experienced a significant decline in market value, suggesting that a proactive embrace of new technologies can help to remain competitive。

Conclusions

This paper provides forward-looking empirical evidence for the debate as to whether an encrypted asset could play a role in the payment. Studies have found that US stabilization currency legislation has cumulatively reduced the market value of existing listed paying enterprises by about 18 per cent, an impact that is slightly greater than other regulatory shocks, such as the Derby Amendment and the digital euro scheme。

Figure 2: Impact of other shocks on payment agencies compared to history

There are significant differences in the impact on different types of payment enterprises. Cross-border payment firms are the hardest hit; firms protected by network effects are less hit, suggesting that this competitive advantage is more difficult to subvert than technical expertise. In the months following the adoption of the Act on Genius, the proportion of paying enterprises providing encryption-related services has increased, and the frequency of reference to stabilization currency in financial teleconferences has increased significantly, confirming that payment firms are responding positively to the competitive pressures of stabilization currency。