illustration: álvaro bernis
CENTRAL BANKERS like to think they own money. They set interest rates and flood markets with liquidity. Yet their monopoly is fraying. In the slipstream of cryptocurrency mania, a revolution has surged ahead. Stablecoins—digital tokens pegged to established currencies, usually the American dollar—have ballooned into a $280bn market. They combine the speed and borderless reach of crypto with the stability of fiat. And they are starting to redraw the map of global finance.
For Washington stablecoins offer an unexpected opportunity: a new channel for reinforcing the dollar’s primacy. For Beijing they represent both temptation and threat, an alluring tool for yuan internationalisation but one that risks undermining China’s capital controls. In between stand dozens of smaller economies, from Nepal to Nigeria, faced with a choice: should they mimic big central banks by building cumbersome central bank digital currencies (CBDCs) or embrace stablecoins as a pragmatic shortcut into the digital-finance age? The answer may shape the next era of monetary sovereignty.
America has not been quick to regulate digital assets. But in July its Congress passed the so-called Genius Act, opening the door for regulated dollar stablecoins. The law requires issuers to hold liquid reserves and submit to audits. The intent is clear: stablecoins should function less like speculative crypto tokens and more like digital money-market funds. Far from undermining the dollar, they could entrench it.
Already more than 99% of stablecoins are dollar-linked. They are widely used in emerging markets plagued by currency volatility, where citizens prefer holding digital dollars to local cash. The Genius Act is Washington’s tacit admission that the best way to preserve dollar dominance is not to resist these tokens, but to co-opt them. The dollar became the backbone of global trade after 1945 because America offered stability and deep financial markets. Stablecoins extend that dominance into the digital realm, binding another generation of savers and traders to greenback liquidity.
Stablecoins also advance American soft power. A Nigerian entrepreneur can pay suppliers in digital dollars at midnight; an Argentinian shopkeeper can store savings in Tether, the most popular stablecoin, instead of pesos that lose value by the week. Such tokens, while privately issued, rest on reserves denominated in US Treasuries and bank deposits. As demand for stablecoins grows, so does demand for American government debt. The dollar’s supremacy is thus reinforced in ways the architects of Bretton Woods could scarcely have imagined.
Beijing sees things differently. For years it has sought to chip away at dollar dominance. The People’s Bank of China (PBOC) has launched the e-CNY, a digital yuan, in dozens of pilot cities. State media touts it as a model of monetary innovation. Yet adoption has been underwhelming. Retail use is modest, cross-border trials limited. More importantly, the e-CNY is bound by the same capital controls that limit the yuan’s appeal abroad.
Stablecoins tempt China precisely because they circumvent such restrictions. A yuan-pegged token, especially if issued offshore in Hong Kong, could lubricate trade settlements without eroding Beijing’s tight grip on capital flows at home. Hong Kong’s authorities seem eager to oblige. In August they introduced a regulatory framework for stablecoins, requiring issuers to hold HK$25m ($3.2m) in capital and back their coins with liquid reserves. The aim is to attract credible issuers while deterring fly-by-night operators.
Yet obstacles abound. Liquid yuan assets offshore are scarce; Hong Kong deposits total less than 1 trillion yuan, a fraction of domestic liquidity. The PBOC occasionally issues short-term debt in Hong Kong, but often retracts it to prevent the offshore yuan strengthening too much against the onshore version. Such unpredictability undermines the very stability that a stablecoin requires.
Meanwhile, Chinese citizens have been enthusiastic adopters of dollar stablecoins despite the mainland’s 2021 ban on crypto trading. An IMF study using machine learning estimated in 2024 Chinese buyers acquired nearly $19bn in stablecoins abroad, often through offshore exchanges such as Binance. This highlights the paradox: even as Beijing seeks to suppress crypto, its own citizens are voting digitally with their wallets.
Elsewhere, governments are plunging ahead with CBDCs, often with limited success. India has piloted a digital rupee but struggled to convince users who already enjoy fast, cheap payments through the Unified Payments Interface (UPI). Nigeria launched the eNaira in 2021 to fanfare, only for adoption to flatline; most Nigerians preferred informal stablecoin use. The European Central Bank is designing a digital euro, but critics worry it may duplicate existing private payment systems.
CBDCs share a common problem: they centralise control, but offer few advantages over well-functioning private systems. They require massive investment in infrastructure as well as sophisticated cybersecurity and public trust in central banks as custodians of personal data. Stablecoins, by contrast, ride on existing blockchain networks, offering 24/7 payments without reinventing the wheel. Their decentralised issuance, backed by reserves, makes them easier to scale—provided regulators impose discipline.
The risk, of course, is fragmentation. Without oversight, stablecoins could become the wild west of finance, prone to “runs” if backing proves weak. Tether, for instance, has faced repeated questions about its reserves. But regulation—such as Hong Kong’s rules or America’s Genius Act—shows how states can bring order to this frontier.
The Nepali experiment
The global debate may sound distant from the Himalayas, but it has immediate relevance for Nepal. The country’s central bank has floated the idea of a CBDC, inspired by India and China. But with limited technical capacity and a banking sector that underserves much of the population, such a project risks becoming an expensive distraction.
Nepal’s economy is heavily reliant on remittances, which account for roughly a quarter of GDP. Millions of Nepalis working abroad send money home each month. The process remains cumbersome: remitters pay high fees and families queue at money-transfer outlets to collect cash. Stablecoins could transform this. A worker in Doha could send digital dollars to Kathmandu instantly; a farmer in Pokhara could cash out through a local fintech wallet. Transaction costs would plunge, and financial inclusion would expand.
Nepal has already embraced digital wallets like eSewa and Khalti, and QR payments are increasingly common in Kathmandu’s cafés. Yet cross-border integration is weak. Stablecoins would bridge that gap, tying Nepal into global payment networks. They could also aid trade. Importers currently juggle costly banking intermediaries. Stablecoins, whether dollar- or rupee-pegged, would ease settlements with Indian and Chinese partners alike.
Critics fret about risks. Stablecoins could undermine Nepal’s capital controls, allowing funds to leak abroad. They might weaken the Nepal Rastra Bank’s monetary authority. And without regulation, they could become conduits for illicit finance. These are legitimate worries. But they are also manageable. A regulated framework—mandating full reserve backing and anti-money-laundering compliance, for example—would mitigate the worst risks while harnessing the benefits.
Nepal could even issue its own rupee stablecoin, pegged to the Indian rupee (to which the Nepali rupee is already fixed). Such a token, backed by liquid assets, would preserve monetary sovereignty while providing digital convenience. In effect, it would be a CBDC by another name—only faster and cheaper.
Big choices
Nepal is hardly alone. Across Africa, Asia and Latin America, policymakers face similar dilemmas. Should they invest scarce resources into CBDCs or piggyback on stablecoins that are already widely used? Should they try to issue national stablecoins or regulate private issuers? Each choice carries implications for monetary sovereignty and financial stability.
Yet the bigger lesson is clear. Stablecoins are less a threat to the state than a tool it can harness. Properly regulated, they extend financial access, reduce costs as well as deepen integration into global trade. Left unregulated they may indeed destabilise economies. But the same could be said of banking in the 19th century before regulation caught up.
The stakes are immense for global finance. The digital money race is often portrayed as a duel between America and China. But its outcome will also be shaped by smaller economies that adopt or resist these technologies. If places like Nepal show that stablecoins can deliver inclusion and efficiency without chaos, they may point the way for others.
For all the talk of disruption, stablecoins may end up entrenching existing hierarchies. The dollar, dominant in trade and reserves, has extended its lead further in the digital realm. Even if Beijing succeeds in launching yuan-pegged stablecoins offshore, demand may remain muted compared with dollar equivalents. Hong Kong’s regulations, though meant to foster innovation, could inadvertently boost American Treasuries by channelling demand into Hong Kong dollar stablecoins—backed, by design, with US assets.
This is the irony of the digital-finance revolution: far from levelling the playing field, it may deepen the incumbents’ advantage. The dollar’s reign was built on deep capital markets and trust in American institutions. Stablecoins, privately issued but dollar-backed, reinforce both. China can restrict, experiment and cajole, but unless it loosens capital controls, the yuan’s digital avatars may find limited traction abroad.
The battle over digital money is not a technological contest but a geopolitical one. Stablecoins are becoming instruments of power, embedding currencies into the daily lives of millions across borders. For America, this is a boon. For China, a puzzle. For small economies like Nepal, a chance to leapfrog.
What matters most is not whether states issue their own digital tokens, but whether they build frameworks that channel private innovation safely. CBDCs may have political allure but they risk being costly monuments to state ambition. Stablecoins, by contrast, offer a nimble, market-driven path—if governments are willing to regulate wisely.
Nepal’s choice is emblematic. Its central bankers can pour resources into a digital rupee that few may use or they can enable stablecoins that meet real needs today. The answer may seem obvious. In digital finance, as in mountaineering, the smartest route is not always the grandest ascent but the one that gets you to the summit intact. ■
