Will Trump's stablecoin push keep the US dollar king?

Too big to fail?

Systemic risks remain a persistent concern. The International Monetary Fund (IMF) identifies four major risks associated with the rising adoption of stablecoins. Chief among these is the erosion of traditional bank deposit bases. As individuals and corporations increasingly choose to hold funds in interest-bearing stablecoins rather than depositing them in conventional banks, the latter's capacity for financial intermediation weakens. This compels banks to seek alternative sources of funding—often more costly and unstable—undermining their business models and reducing their ability to provide credit to the real economy.

A second concern involves the growing interconnectedness between stablecoins and traditional finance, meaning that disruptions within the stablecoin ecosystem could reverberate through the financial system, potentially triggering systemic shocks with global consequences. A third risk arises from the widespread use of dollar-pegged stablecoins in certain regions, which could undermine monetary sovereignty and limit local authorities' ability to steer domestic financial systems.

Lastly, stablecoins urgently require comprehensive regulation. The IMF has called for a globally coordinated framework to ensure the sound governance of these digital assets. The Bank of France is also concerned about the inherent fragility of the stablecoin model, warning of two critical threats. The first threat is fraud and deception. Without robust regulatory oversight, some issuers may misrepresent the scale or quality of their reserves. Exposing this could spark panic and sell-offs, overwhelming the issuer's capacity to maintain the peg and leading to a broader market collapse.

Knowing the risks

The second threat is much more serious; it is that stablecoins could trigger the next global financial crisis. Issuers are often incentivised to mint more tokens than they hold in reserve, depositing those reserves in commercial banks. In the event of a bank run, pressure could spill into the stablecoin market, prompting holders to rush into redemptions—often at a loss—for fiat currency. This could create a dangerous feedback loop, intensifying financial contagion.

Unlike traditional banks, stablecoin issuers lack systemic backstops such as lender-of-last-resort facilities or deposit insurance. Consequently, a significant disruption could spread across payment systems and capital markets, including equities, bonds, and US Treasuries. Given that many stablecoins are issued outside the US, it is improbable that US authorities would intervene to support foreign issuers—even if their tokens are dollar-denominated.

Beyond financial concerns, stablecoins also present serious operational risks—chief among them cybersecurity. The digital infrastructure underpinning these assets remains susceptible to breaches. Addressing this vulnerability is no simple matter. As early as 2016, the US National Institute of Standards and Technology warned that quantum computing could one day compromise existing public-key encryption systems. In short, what seems secure today may prove dangerously inadequate tomorrow.

As the issuer of the world's dominant reserve currency, the United States enjoys what economists call an "exorbitant privilege"—the ability to borrow at low interest rates even during economic downturns, despite its persistent trade deficits. This advantage stems from deep global trust in American institutions, legal frameworks, and economic resilience. US President Donald Trump appears determined to preserve this privilege amid mounting pressures, both old and new.

Dollar supremacy

Trump's strategy hinges on stimulating demand for dollar-backed stablecoins and US Treasury bonds, thereby lowering the cost of federal borrowing. This leverages America's technological edge to secure victory in the global currency race. For Trump, the dollar's strength would rest not only on its ties to the world's largest economy, the world's most powerful central bank, and the world's largest gold reserves, but also on its superior protection against cyber threats. This enhances the dollar's appeal for cross-border payments and solidifies its role in digital finance.

The consequences of regulatory inaction are clear. Without a framework that incentivises stablecoin issuers to register and operate within the US, activity may shift to jurisdictions with weaker oversight, raising the risk of financial instability. Moreover, failure to act could jeopardise the dollar's dominance if non-dollar stablecoins gain traction in global trade and finance. US leadership in issuing and regulating stablecoins is therefore essential to safeguarding the dollar's supremacy.

On 23 January 2025, shortly after taking office, President Trump signed an executive order titled Enhancing American Leadership in Digital Financial Technology. The aim of it is to "support and protect the sovereignty of the US dollar and promote the development and global growth of dollar-backed stablecoins". It also warned against central bank digital currencies (CBDCs), which Trump sees as threats to financial stability, individual privacy, and US sovereignty—calling for their issuance and use to remain strictly within US jurisdiction.

Lawmakers wade in

On 17 June, the US Senate passed the GENIUS Act (Guiding and Establishing National Innovation for US Stablecoins), designed to regulate stablecoin issuance, build public trust, and encourage widespread adoption—cementing the dollar's leadership in the global digital economy. Key provisions of the GENIUS Act require private issuers to peg their stablecoins to traditional currencies (implicitly the dollar) or commodities, and to maintain reserves in liquid, secure assets—such as bank deposits or Treasury bonds—equal to the market value of the coins. The law also mandates strict operational transparency, guarantees redemption at face value, and grants holders senior creditor status in the event of bankruptcy.

Another bill, the CLARITY Act, is expected to pass Congress soon. It outlines registration rules for stablecoin developers and intermediaries with the Securities and Exchange Commission (SEC), and sets standards for trading platforms, token offerings, and decentralised finance transactions. The legislation also includes provisions to combat fraud and illicit use, enforce disclosure and recordkeeping requirements, and ensure the absence of conflicts of interest.

The US House Financial Services Committee is currently reviewing a bill titled Stablecoin Transparency and Accountability for a Better Ledger Economy. It aims to restrict which entities may issue, market, and sell 'payment stablecoins' in the US. It also outlines stringent requirements for issuers, including capital adequacy, liquidity thresholds, and risk management standards. If passed, this new regulatory framework could position the US as the "crypto capital of the world"—a vision Trump champions.

The US Treasury estimates that as much as $6.6tn in commercial bank deposits could shift into stablecoins once the comprehensive legislative framework for digital assets is fully enacted. According to Standard Chartered Bank, the US stablecoin market could grow to $2tn by the end of 2028. Much of this capital is expected to flow into US Treasury bonds, a windfall for a government grappling with persistent fiscal deficits.

Privatising money

However, Nobel laureate economist Simon Johnson warns that the emerging system could precipitate a boom-bust cycle, leading to financial panic and recession. He envisions a fragile coexistence between two competing monetary regimes: one underpinned by public money, the other dominated by private, dollar-linked stablecoins. A clash between the two, he argues, is inevitable—and could detonate a "massive ticking time bomb" within the foundations of the global economy.

For former Greek finance minister and economist Yanis Varoufakis, Trump's stablecoin strategy is a direct challenge to the 20th-century global monetary order. He notes that the GENIUS Act prohibits the Federal Reserve from issuing its own digital currency, while granting that right to private firms—effectively casting them as the new custodians of dollar supremacy. For Varoufakis, these companies serve as Trojan horses for the privatisation of money, handing control over the financial system to big technology firms (aka 'Big Tech') in what he describes as the "feudalisation of finance".

Officials at the European Central Bank (ECB) look at stablecoins through a geopolitical lens. With the global stablecoin market overwhelmingly backed by the US dollar, the trend is seen as a direct threat to the EU's monetary sovereignty. Brussels sees Washington's legislative push to promote dollar-based stablecoins as a strategic move to entrench the dollar's dominance within the international financial architecture.

A digital euro

The ECB, by contrast, is charting an alternative path; it is developing a digital euro, designed to complement the physical currency and preserve the primacy of public money in financial transactions. The digital euro aims to offer a secure, sovereign alternative for payments and transfers, reinforcing the EU's strategic autonomy.

Potential benefits of the digital euro include a new tool for implementing monetary policy and improving financial inclusion. It could also reduce reliance on intermediaries—such as banks and clearing houses—by enabling real-time, direct transactions between payers and recipients through free central bank accounts. This would ensure full deposit security while encouraging competition among banks to attract funds.

Furthermore, the traceability of digital euro transactions could help deter illicit activity such as tax evasion and support fund recovery when necessary. In 2023, the EU adopted the Markets in Crypto-Assets (MiCA) framework to regulate digital asset services, safeguard investors, and maintain financial stability, while promoting innovation and healthy market competition.

Europe now stands at a strategic crossroads. Unlike the political volatility and regulatory fragmentation found elsewhere, the EU's stable institutions and commitment to the rule of law offer a robust platform for trust. If the bloc can harness this foundation through sound regulation, infrastructure development, and digital innovation, the euro may emerge from this transition not only more resilient but also as a stronger and more globally trusted currency.