Stablecoins Hold the Potential to Boost US Dollar's Dominance: Here's Why
The US is currently in the midst of a series of geopolitical and economic initiatives that are causing significant turmoil in the global economy, with some effects comparable to those of wartime events in recent history. The strength of the US dollar as the global reserve currency is a crucial element of US economic leadership, past and present. While there are arguments for and against maintaining this status, it remains an essential part of US diplomacy and economic negotiations.
Right now, stablecoin regulations are moving to the forefront of discussions due to the passing of the GENIUS Act by the Senate Banking Committee on March 13. This legislation provides clear guidelines for dollar-backed stablecoins, potentially preventing the volatility seen in other stablecoin variations. Furthermore, the advancement of stablecoin attestation and auditing standards is being expedited by governmental support and legislation at the US level. Since the vast majority of the over $200 billion stablecoin market consists of dollar-backed stablecoins, including USDT, which raises questions about the status of reserves, clearer regulations are crucial.
Here's why stablecoin leadership should be promoted in the US and its benefits for the US dollar:
increasing demand for US dollars and US debt
Dollar-backed stablecoins have the potential to boost demand for US dollars and US debt, given the nation's enormous debt load of over $35 trillion. By accessing deposits at non-bank entities and operating somewhat outside of traditional banking channels, the US government can influence the flow of tokenized dollars globally. For every new stablecoin issued by a US regulated and supervised issuer, demand for US debt and currency increases.
Emerging markets, which have suffered from inconsistent trade rhetoric from various countries, offer stablecoins a chance to strengthen the US presence in these crucial markets. The increasing number of TradFi banking institutions launching dollar-backed stablecoins, coupled with partnerships between issuers such as Circle and US regulators, means that digitized dollars (stablecoins) could soon become an essential tool in the digital policy toolkit.
Competing against other tokenized fiat
As the US faces competition from other political, economic, and geopolitical powers, the potential for other currencies to capitalize on the opportunities provided by stablecoins is not far-fetched. For instance, while China has largely banned cryptocurrencies, the same government has shown interest in central bank digital currencies in the past.
Recent remarks by Italian Minister of Economy and Finance, Giancarlo Giorgetti, expressed concerns about financial institutions relying on US dollar-backed stablecoins while emphasizing the role that the Digital Euro, a European Union-backed project, could play. In a world where rivals and allies alike view dollar-backed stablecoins as a potential game-changer in the perception, use, and value of money, the importance of stablecoin leadership becomes apparent.
Helping reduce crypto volatility
Investors and policymakers alike have expressed concerns about the crypto market's volatility, even with advancements made in various areas. Despite policy support from the White House, institutional buy-in, and a shift towards a pro-crypto stance, Bitcoin's price fluctuations have remained significant.
The integration of dollar-backed stablecoins can attract additional investment to the sector and reduce trading volatility due to the stability of the US dollar, the established infrastructure of dollar-based payment rails, and the potential for income-generating opportunities. As the landscape favors greater stablecoin adoption in 2025, dollar-backed stablecoins will play a key role in sustaining and improving US dollar leadership.
- Policymakers are actively discussing regulations for stablecoins, such as the GENIUS Act, to minimize volatility and provide clear guidelines for dollar-backed stablecoins like USDT.
- Increasing demand for US dollars and US debt is a potential benefit of dollar-backed stablecoins, as they can help manage the nation's enormous debt load of over $35 trillion.
- Emerging markets present an opportunity for the US to strengthen its presence through stablecoins, with an increasing number of TradFi banking institutions launching these digital assets.
- As other countries, including China and the European Union, explore central bank digital currencies, promoting stablecoin leadership is crucial for the US to maintain its economic and geopolitical influence.