Illustration: Alvaro Bernis
A fresh menace preoccupies the world’s central bankers: the prospect of dollars going fully digital. Not those issued by the Federal Reserve, but a sprawling, privately issued network of crypto-dollars known as stablecoins. Their combined value, north of $300bn, is still a fraction of the $117trn held in global bank deposits. Yet their potential is causing a radical shift in American financial statecraft. The Trump administration is weaving these digital tokens into a strategic plan to reinforce the dollar’s global hegemony and counter moves away from the greenback, as well as secure new sources of demand for America’s vast public debt.
Stablecoins are a type of cryptocurrency pegged to a stable asset, most often the American dollar. They allow anyone with an internet connection to hold and transfer digital dollars using public blockchains, without needing a bank account. Crucially, 99.8% of the stablecoin market is dollar-denominated. They are, in effect, offshore dollars for the digital age. The American government, after years of regulatory ambivalence, now sees them not as a threat to its financial system but as a vehicle to extend its reach.
The legal bedrock for this new strategy is the GENIUS Act, recently passed by the Senate Banking Committee with bipartisan support. The act brings stablecoins under a federal regulatory framework. Its core requirement is that issuers must hold high-quality, liquid assets equivalent to the value of their tokens in circulation. These reserves must be held in American dollars, insured bank deposits, balances at the Fed, short-term Treasury bills, repurchase agreements or money-market funds. The genius of this, from Washington’s perspective, is that every new stablecoin minted creates automatic new demand for ultrasafe American government debt.
The scale of the opportunity is vast. America’s national debt stands at $35.8trn. Standard Chartered, a bank, projects the stablecoin market could grow to $2trn. The Treasury Secretary suggests it may hit $3trn by 2030. Such growth would be equivalent to a permanent quantitative-easing programme, creating a massive, structural new buyer for American debt. Some economists estimate it could push down American interest rates by around 40 basis points. Private stablecoin issuers already hold more Treasuries than Saudi Arabia or Germany, and almost as much as Norway.
This is not a top-down diktat from Washington, but a bottom-up form of dollarisation driven by individuals. In emerging markets plagued by high inflation, weak currencies and capital controls, people are turning to dollar stablecoins as personal stores of value. Each new user deepens global reliance on the dollar and its underlying assets. The administration aims to amplify this trend, using stablecoins to bypass traditional banking networks and embed the dollar directly into the digital economy.
Geopolitically, the move is a masterstroke of co-option. Stablecoins originally flourished partly as a tool to circumvent American sanctions and the SWIFT banking-messaging system. By bringing them under its regulatory wing, America seeks to neuter that threat and turn them into an instrument of its own monetary power. The new doctrine appears to be: if you cannot stop them, regulate them and then weaponise them. The administration is supported by friendly private-sector players, such as World Liberty Financial, which has launched its own dollar stablecoin with substantial funding.
Inevitably, there is pushback. European central bankers are alarmed. They see the rise of private dollar stablecoins as a form of seigniorage captured by American entities, which could weaken European currencies and limit their monetary sovereignty. The European Central Bank is racing to develop a digital euro, but it is not expected until 2029. Meanwhile, the traditional banking lobby fears a flight of deposits as savers move into stablecoins. It successfully lobbied to ban “yield-bearing” stablecoins that explicitly pay interest, but worries that issuers will find other ways to offer returns.
The grander vision, articulated by Trump advisers, is of a new “Bretton Woods on Blockchains”. The 1944 agreement established the dollar as the anchor of the post-war financial system, using central banks and wire transfers. This new system would use smart contracts and crypto wallets. It seeks to revive the “exorbitant privilege” the dollar affords America, countering fears of de-dollarisation and deepening global dependence on American debt markets. It may also, however, destabilise the bond markets of other governments, who may struggle to attract investors amid a glut of dollar-based alternatives.
If the Trump administration’s stablecoin policy succeeds, it may be remembered as the most significant American financial innovation since the end of the Second World War. ■