US Government Embraces Stablecoins to Safeguard Dollar's Reserve Status

The United States is increasingly recognizing the potential of stablecoins in maintaining the dollar's status as the world's primary reserve currency. According to a recent report by Sygnum, a digital asset banking group, the U.S. government views stablecoins as a crucial tool in preserving the dollar's dominance in global financial markets. This perspective is driven by the need to maintain the dollar's reserve status, which plays a pivotal role in international trade and finance. However, the rise of digital currencies and the increasing use of cryptocurrencies pose a threat to the dollar's dominance. By embracing stablecoins, the U.S. can leverage the benefits of digital currencies while maintaining the stability and trust associated with the dollar.

Stablecoins, which are digital currencies pegged to the value of a stable asset such as the U.S. dollar, offer several advantages. They provide a means of transferring value quickly and efficiently across borders, reducing the need for traditional banking systems. This can be particularly beneficial for countries with underdeveloped financial infrastructure, where stablecoins can facilitate economic growth and financial inclusion. The U.S. government's interest in stablecoins is driven by the need to maintain the dollar's reserve status. As the world's leading reserve currency, the dollar plays a pivotal role in international trade and finance. However, the rise of digital currencies and the increasing use of cryptocurrencies pose a threat to the dollar's dominance. By embracing stablecoins, the U.S. can leverage the benefits of digital currencies while maintaining the stability and trust associated with the dollar.

Sygnum's perspective aligns with this view, emphasizing the importance of stablecoins in providing a stable and reliable medium of exchange. The bank notes that stablecoins can help reduce volatility in the cryptocurrency market, making them a more attractive option for investors and businesses. This stability can also help to build trust in digital currencies, further enhancing their adoption and use. The U.S. government's recognition of stablecoins as a key tool in preserving the dollar's reserve status is a significant development. It reflects a growing awareness of the potential of digital currencies and the need to adapt to the changing financial landscape. By embracing stablecoins, the U.S. can maintain its leadership in global finance while also promoting innovation and technological advancement.

To accelerate this goal, the current administration is encouraging the growth of the stablecoin market and urging Congress to pass related legislation. US President Donald Trump and key members of his administration, including Treasury Secretary Scott Bessent and AI and David Sacks, Trump’s “Crypto and AI Czar,” who leads the President’s Council of Advisors on Science and Technology, are pushing for the swift passing of the GENIUS Act, which regulates stablecoins and their issuers in the United States. The Act passed the Senate on June 17 and is currently in the House of Representatives.

However, resistance to dollar-pegged stablecoins is growing worldwide. On April 16, Italy’s finance minister warned that US dollar stablecoins pose a greater risk than tariffs and that the appeal of these stablecoins should not be underestimated. There is growing demand for stablecoins not pegged to the US dollar, despite the limited liquidity for these coins at the moment. Three major entities in Abu Dhabi have teamed up to launch a dirham-pegged stablecoin, pending approval from UAE regulators. This indicates a global shift towards alternative stablecoins that are not tied to the US dollar, which could challenge the dollar's reserve status.

Demand for US dollars is coming from retail in developing countries, which face rising inflation and depreciating local currency. The US administration believes that dollar-denominated stablecoins can serve this demand and reverse the dollar’s eroding reserve currency status. Katalin Tischhauser, head of research at Sygnum, noted that the dominance of dollar stablecoins across the crypto industry can help reinforce the dollar’s monetary dominance if the blockchain-based, decentralized economy expands substantially. However, he also acknowledged that there may not be a compelling case for stablecoins moving the needle on dollar dominance beyond that, unless retail use accelerates in developing countries on the back of incentives.

In addition, resistance may come from BRICS, a bloc of 10 countries seeking to reduce reliance on the US dollar. According to Sygnum, the group is advancing a multipolar financial system that favors using multiple fiat currencies for cross-border trade and settlement, rather than a single global reserve currency. This could further challenge the dollar's reserve status and promote a more diverse global financial system.