Stablecoins received a significant boost when US President Donald Trump signed the GENIUS Act earlier this year. Now, European banks are attempting to enter the market by issuing their own stablecoins.
Their desire to emulate the US dollar's supremacy, a long-standing pillar of American economic strength, is understandable. In the wake of the GENIUS Act, dollar-backed, privately issued stablecoins are experiencing a surge in popularity, presenting a strategic opportunity for the United States.
By fostering an environment that supports stablecoins and operating under the umbrella of US banking infrastructure, the US can reinforce the dollar's global dominance while democratizing access to finance abroad, particularly in developing countries.
These "digital dollars" offer numerous benefits. They can reduce fees, shorten settlement cycles, counteract local inflation, and broaden access to trade and finance for smaller companies that face challenges with correspondent banking.
The Stablecoin Surge
Stablecoins have seen a remarkable increase in market capitalization, with transactions exceeding $265 billion. A vast majority of this value is denominated in dollars. Each dollar stablecoin is backed by safe assets, requiring stablecoin issuers to maintain substantial reserves of US dollars and Treasury bills. The demand for stablecoin reserves shifts Treasury bill ownership from bank deposits and money market funds to issuers. More significant ripple effects would emerge if this infrastructure facilitates increased commerce.
Federal Reserve Governor Christopher Waller noted that if regulators "allow these things to go out, this will only strengthen the dollar as a reserve currency," as greater stablecoin usage leads to increased demand for dollars and US debt. Secretary Scott Bessent has been even more direct: "We are going to keep the US [dollar] the dominant reserve currency in the world, and we will use stablecoins to do that."
Stablecoins and the Developing World
For developing countries, integrating with the dollar via stablecoins can unlock much-needed economic activity. Many of these nations grapple with volatile currencies, high inflation, and underdeveloped banking systems. Their citizens often seek refuge in dollars—a phenomenon economists refer to as "dollarization"—but until now, this involved physical cash or expensive wire transfers.
Stablecoins revolutionize this by making dollars accessible to anyone with a cell phone. Instead of waiting at a bank and incurring high exchange fees, a farmer or shopkeeper can instantly hold digital dollars in a smartphone wallet. Stablecoins are making the world's most in-demand asset—the US dollar—available on demand, globally.
This has profound implications for financial inclusion. Approximately 1.4 billion adults worldwide remain unbanked, with a significant proportion residing in Africa and Asia. Stablecoins enable users to save in a stable currency and conduct transactions globally without a bank account, thereby bypassing traditional barriers such as ID checks and branch access.
Financial Inclusion Through Stablecoins
In Sub-Saharan Africa, for example, dollar stablecoins have become an essential tool for payments, savings, and commerce amidst currency instability. Over 40% of all cryptocurrency transaction volume in Africa is now in stablecoins. Users are even willing to pay a premium for stablecoins; businesses and individuals in emerging markets sometimes pay 5% or more above face value simply to acquire digital dollars, which underscores their urgent need for a reliable store of value.
Crucially, stablecoins also facilitate commerce. Consider the example of remittances—the lifeblood of many developing economies. Africans abroad sent $54 billion in remittances home in 2023, but traditional channels charge senders an average of nearly 8% in fees. Stablecoins can drastically reduce these costs.
In one Kenyan pilot, using stablecoins for cross-border micropayments reduced fees from 28.8% to just 2%, allowing gig workers to retain more of their earnings. Global consultants estimate that over $12 billion annually could be saved in remittance fees if stablecoins replaced wire transfers—money that directly benefits local households and consumption.
Where local banks perceive excessive risk or insufficient profit to lend, stablecoin-based financing and decentralized finance can help bridge the credit gap, playing a vital role in fostering entrepreneurship and growth for African small and medium-sized enterprises.
Stablecoins and Their Superpowers
Wider adoption of stablecoins in developing countries could also counter the influence of entities like China, which has spent years extending loans to poorer nations under unfavorable terms. As part of the Belt and Road Initiative, Beijing's overseas lending has left dozens of countries burdened with debts they struggle to repay. In extreme cases, defaulting nations have been compelled to cede control of strategic assets, such as ports and power plants, to Chinese entities.
This "debt-trap diplomacy" flourishes when nations lack alternative financing options.
By embracing dollar stablecoins and digital finance more broadly, developing countries can raise capital through new avenues and extricate themselves from such predatory arrangements.
Another promising avenue is the tokenization of sovereign debt. Rather than relying exclusively on large foreign creditors, governments can issue bonds in smaller denominations on blockchain platforms, making it more accessible for local citizens and diaspora investors to participate.
Governments from Kenya to Brazil are already exploring tokenized bonds and Treasury bills that can be purchased and traded via digital wallets. Such decentralized fundraising could assist countries in refinancing or repurchasing expensive foreign loans—effectively crowd-funding their way out of challenging financial situations. Every dollar raised from a diaspora bond or global crypto investor represents a dollar that does not need to be borrowed from sources on stringent terms.
CBDCs in the Corner
Central banks have also recognized these opportunities. Numerous central banks are developing central bank digital currencies (CBDCs) as state-controlled alternatives to private stablecoins. Proponents argue that a government-issued digital currency can enhance financial inclusion and modernize payments, but the early evidence is underwhelming.
Nigeria's eNaira, one of the earliest retail CBDCs, has seen limited adoption—98% of Nigerians who opened eNaira wallets ceased using them by the end of 2023. Meanwhile, Nigerians continue to gravitate towards dollar-backed stablecoins as a hedge against the depreciating naira. This pattern is observed elsewhere: Enthusiasm for CBDCs often originates from leadership, while stablecoins gain traction from the ground up by addressing genuine user needs. Even China has had modest success in encouraging other countries to adopt its digital currency, especially when dollar stablecoins already possess a significant global lead.
Academic research suggests that when central bankers promote CBDC initiatives, stablecoin activity declines—indicating that rhetoric alone can divert momentum from the private sector. This might please officials wary of competition, but it can deprive consumers of superior services.
Furthermore, research comparing countries that have adopted CBDCs with those that have not, both before and after adoption, finds no discernible effects on macroeconomic outcomes, such as GDP per capita or inflation, and notes adverse effects on financial well-being. In essence, CBDCs have yet to deliver significant improvements in financial access or efficiency, whereas stablecoins are already achieving this.
Encouraging developing countries to utilize dollar-backed stablecoins presents a win-win scenario, functioning similarly to the printed dollar's role following the supremacy of gold. For the US, it signifies an expansion of the dollar's influence—reinforcing its reserve currency status in the digital age and countering rivals who aim to promote alternative spheres of monetary control.
For developing nations, it translates to enhanced access to a stable currency, new pathways for investment, reduced transaction costs, and potential escape routes from burdensome creditors. In an increasingly tense geoeconomic landscape, digital dollars could become a cornerstone of a more democratic and resilient global financial system.
The United States is embracing this opportunity: By championing dollar stablecoins and the open financial networks they operate on, America can contribute to unlocking growth in emerging economies while bolstering its own economic strength.
In the global competition for hearts, minds, and wallets, a stable currency could prove to be a significant advantage.