Author of the viewpoint: Christos A. Makridis, Associate Research Professor at Arizona State University, Visiting Scholar at the Heritage Foundation
When U.S. President Donald Trump signed the GENIUS Act earlier this year, stablecoins received a significant boost—now, European banks are also trying to get involved by issuing their own stablecoins.
Their envy of the dollar's hegemony is understandable, as the dollar has long been a pillar of U.S. economic power. Driven by the GENIUS Act, dollar-based privately issued stablecoins are rapidly gaining popularity, providing a strategic opportunity for the U.S.
By creating an environment that supports stablecoins and operating under the umbrella of U.S. banking infrastructure, the U.S. can strengthen the global dominance of the dollar while democratizing access to finance abroad, especially in developing countries.
These "digital dollars" offer many benefits. They can reduce costs, shorten settlement times, combat local inflation, and expand access to trade and finance for small businesses that face difficulties with traditional banks.
The market value of stablecoins has surged, with trading volumes exceeding $265 billion. Almost all of this value relies on the dollar. Each dollar stablecoin is backed by secure assets, meaning stablecoin issuers must hold substantial amounts of dollars and government bonds. The demand for stablecoin reserves shifts ownership of government bonds from bank deposits and money market funds to issuers; if this infrastructure facilitates more commercial activity, a larger ripple effect will occur.
Federal Reserve Governor Christopher Waller noted that if regulators "allow these things to circulate, it will only strengthen the dollar's position as a reserve currency," as increased stablecoin usage means higher demand for dollars and U.S. debt. Secretary Scott Bessent was even more direct: "We will maintain the U.S. [dollar] as the dominant reserve currency in the world and will use stablecoins to achieve that."
For developing countries, integrating stablecoins with the dollar can unleash desperately needed economic activity. Many of these countries suffer from currency volatility, high inflation, and inadequate banking systems. Their citizens often seek the dollar as a safe haven—what economists call "dollarization"—but until now, this has meant physical cash or expensive wire transfers.
Stablecoins change the game by allowing anyone with a smartphone to access dollars. Farmers or shopkeepers no longer need to wait at banks and pay high exchange fees; they can hold digital dollars instantly in their smartphone wallets. Stablecoins are making the world's most popular asset—the dollar—available on demand globally.
This has profound implications for financial inclusion. Approximately 1.4 billion adults worldwide still lack bank accounts, with a significant portion residing in Africa and Asia. Stablecoins enable users to save in stable currencies and conduct global transactions without needing a bank account, bypassing traditional barriers such as identity checks and branch access.
For example, in sub-Saharan Africa, dollar stablecoins have become important tools for payments, savings, and commerce amid currency instability. Over 40% of Africa's cryptocurrency trading volume 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 just to obtain digital dollars, indicating their urgent need for reliable value storage.
Crucially, stablecoins also facilitate commercial activity. Consider remittances—the lifeline for many developing economies. In 2023, Africans abroad sent back $54 billion in remittances, but traditional channels charged senders an average fee of nearly 8%. Stablecoins can significantly reduce these costs.
In a pilot project in Kenya, using stablecoins for cross-border micropayments reduced fees from 28.8% to just 2%, allowing gig workers to retain more of their income. Global consultants estimate that if stablecoins replaced wire transfers, over $12 billion in remittance fees could be saved annually—money that goes directly into local households and consumption.
In cases where local banks deem the risks too high or the profits too low to lend, stablecoin-based financing and decentralized finance can help fill the credit gap, playing a crucial role in fostering entrepreneurship and growth among SMEs in Africa.
Wider adoption of stablecoins in developing countries can also counter the influence of players like China, which has long provided loans to poorer nations under harsh conditions. As part of the Belt and Road Initiative, Beijing's overseas loans have burdened dozens of countries with unmanageable debt. In extreme cases, defaulting countries have had to hand over strategic assets, such as ports and power plants, to Chinese control.
This "debt-trap diplomacy" thrives when countries lack alternative financing options.
By embracing dollar stablecoins and broader digital finance, developing countries can raise funds in new ways and escape these predatory arrangements.
Another promising avenue is the tokenization of sovereign debt. Governments can issue bonds in smaller denominations on blockchain platforms, rather than relying solely on large foreign creditors, making it easier for local citizens and diaspora investors to participate.
Governments from Kenya to Brazil are exploring tokenized bonds and government bonds that can be purchased and traded through digital wallets. This decentralized fundraising approach can help countries refinance or buy back expensive foreign debt—effectively crowdfunding their way out of China's shadow. Every dollar raised from diaspora bonds or global crypto investors is a dollar that does not have to be borrowed from Beijing under harsh terms.
Central banks are also recognizing these opportunities. Dozens of central banks are developing Central Bank Digital Currencies (CBDCs) as state-controlled alternatives to private stablecoins. Proponents argue that government-issued digital currencies can enhance financial inclusion and modernize payments, but early evidence has been unsatisfactory.
Nigeria's eNaira is one of the first retail CBDCs, but it has failed—by the end of 2023, 98% of Nigerians had stopped using their eNaira wallets. Meanwhile, Nigerians continue to flock to dollar-backed stablecoins to hedge against the depreciating naira. This scenario is being repeated elsewhere: enthusiasm for CBDCs often comes from the top down, while stablecoins gain adoption from the bottom up by meeting real user needs. Even China has struggled to get other countries to use its CBDC, especially as dollar stablecoins have already gained a significant head start globally.
Academic research shows that when central bankers push CBDC initiatives, stablecoin activity declines—indicating that mere rhetoric can siphon momentum from the private sector. This may please officials concerned about competition, but it could deprive consumers of better services.
Furthermore, research comparing countries that adopted CBDCs with those that did not found no impact on macroeconomic outcomes (such as GDP per capita or inflation) either before or after adoption, and adverse effects on financial well-being. In short, CBDCs have yet to deliver breakthrough improvements in financial access or efficiency, while stablecoins have already been doing so.
Encouraging developing countries to use dollar-backed stablecoins is a win-win proposition, functioning similarly to printed dollars after the hegemony of gold. For the U.S., this means expanding the influence of the dollar—strengthening its reserve currency status in the digital age and countering competitors seeking to promote alternative currencies.
For developing countries, this means easier access to stable currencies, new investment avenues, lower transaction costs, and the opportunity to escape from tough creditors. In an increasingly tense geopolitical landscape, the digital dollar could be key to a more democratic and resilient global financial system.
The U.S. is seizing this opportunity: by supporting dollar stablecoins and the open financial networks they operate on, the U.S. can help unleash growth in emerging economies while solidifying its own economic strength.
In the global competition for hearts, minds, and wallets, a little stable currency can go a long way. Author of the viewpoint: Christos A. Makridis, Associate Research Professor at Arizona State University, Visiting Scholar at the Heritage Foundation
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Original: “Stablecoins are strengthening the dollar's position and empowering the developing world”
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