Unilateral Stablecoin Adoption Risks Global Contagion from Volatility Spillovers

The unilateral promotion of stablecoins by individual nations could amplify global financial instability, according to emerging analyses. Critics argue that such initiatives, often aimed at bypassing traditional banking systems or leveraging blockchain technology, risk creating new channels for volatility to spread. Specifically, the interplay between U.S. Treasury bond price swings and U.S. Dollar (USD) fluctuations—already significant factors in global markets—could be exacerbated if stablecoins are over-relied upon as a substitute for conventional reserves. This dynamic raises concerns about contagion effects, where disruptions in one jurisdiction might ripple across borders, undermining confidence in both fiat and digital assets [1].

Chen Yulu, President of Nankai University, highlighted five major hidden dangers in a speech at the “2025 International Financial Forum,” including the amplification of traditional financial risks and spillover from U.S. Treasury bond and USD volatility. He emphasized that unilateral stablecoin adoption could destabilize existing monetary frameworks by creating feedback loops that propagate external shocks. For example, a country anchoring its digital currency to a USD-linked stablecoin might expose itself to liquidity crises if the USD’s value fluctuates, given its role as a global reserve currency [2].

The decentralized nature of stablecoins further complicates oversight, according to analysts. Unlike traditional monetary policy, which is centralized and transparent, stablecoin systems often operate in opaque or fragmented ecosystems. This lack of clarity could deter coordinated responses to crises, leaving regulators with limited tools to mitigate spillovers. A sudden loss of confidence in a major stablecoin could trigger panic-driven redemptions, overwhelming its reserve base and cascading into broader market panic [3].

The debate underscores broader implications for international monetary architecture. If multiple countries pursue parallel stablecoin systems, the potential for fragmentation grows, straining global financial stability. While proponents highlight benefits like reduced transaction costs and financial inclusion, systemic risks remain underexplored in most policy frameworks. Chen Yulu called for multilateral collaboration, advocating for principles such as “intrinsic value, systemic stability, and inclusive outreach” to build a coordinated digital currency liquidity network [4].

Sources:

[1] [Title: "The Role of Stablecoins in Global Finance"] [URL: https://verfassungsblog.de/category/aaa-general/en/]

[2] [Title: "Stablecoin Risks and Systemic Contagion"] [URL: https://verfassungsblog.de/category/aaa-general/en/]

[3] [Title: "Regulatory Challenges in Digital Currency Adoption"] [URL: https://theeditorialpost.com/tags/Social%20Business]

[4] [Title: "Monetary Policy in the Digital Age"] [URL: https://theeditorialpost.com/tags/Social%20Business]