The Federal Reserve Bank of Kansas City published a report arguing that dollar-pegged stablecoins are more likely to strengthen the U.S. dollar’s global role than to weaken it. The analysis, authored by Circle executive Gordon Liao, Cornell economist Eswar Prasad, and economist Tony Zhang, finds that approximately 98% of stablecoins are denominated in U.S. dollars, and global users overwhelmingly prefer dollar-pegged assets over euro- or yuan-based alternatives for cross-border transactions.
Because stablecoin issuers hold reserves mainly in short-term U.S. Treasurys and cash-equivalent assets, the authors say stablecoin adoption directly increases demand for U.S. government debt. This dynamic, they argue, reinforces the dollar’s position in global finance. The report also notes that no credible rival stablecoin has emerged: euro-based stablecoins represent only a small share of supply, while yuan-pegged stablecoins remain negligible. Network effects and trust in dollar assets create high barriers for competitors.
At the Jackson Hole Economic Policy Symposium, Bank for International Settlements General Manager Pablo Hernandez de Cos offered a more cautious view. According to Reuters, he said stablecoins are unlikely to meet the standards required for large-scale payment and settlement systems. He suggested tokenized deposits backed by regulated commercial banks should handle everyday payments, while stablecoins should be limited to specialized use cases.
Hernandez de Cos warned that stablecoin growth could increase demand for U.S. Treasuries and lower government borrowing costs, but also risks drawing deposits away from banks. That could raise bank funding costs and ultimately lead to higher lending rates for consumers and businesses. He highlighted concerns over reserve adequacy, potential runs, and lack of clear legal frameworks in many jurisdictions. With total stablecoin market capitalization exceeding $150 billion, the debate over whether stablecoins reinforce or disrupt dollar dominance is intensifying.
