The dollar’s dominance has survived its de-pegging from gold, decades of deteriorating fiscal discipline by the U.S. government, and active efforts by criminals, terrorists, and foreign governments to find alternative forms of payment. That dominance has kept the United States’ borrowing costs manageable as its debts mount. But now this central pillar of U.S. economic stability and geopolitical influence faces a fresh challenge from digital alternatives.

During his first term, U.S. President Donald Trump often called the cryptocurrency industry a scam. By now, however, his family has plunged money into it—and his administration has bet that so-called U.S. dollar stablecoins, or privately issued cryptocurrencies regulated by the U.S. government and backed primarily by cash and other safe dollar assets, can reinforce the dollar’s role as the world’s primary reserve currency. After backing last summer’s passage of the Genius Act, which sets out a regulatory framework for dollar stablecoins, Trump has championed the United States as a world leader in the industry.

Unbacked cryptocurrencies can be volatile, limiting their uptake. But stablecoins, which emerged about a decade ago, promise to reduce this risk, lower transaction costs for multinational firms, and offer financial services to people who cannot otherwise access bank accounts. If the stablecoin market expands dramatically and remains dollar-denominated (increasing demand for U.S. debt), that, in turn, could reinforce dollar dominance and the substantial power it affords the United States. It would make U.S. financial sanctions more effective and cement Washington’s influence in setting the standards for a new financial frontier.

But those benefits are not guaranteed as the stablecoin market grows. Dollar-denominated stablecoin issuers can be based anywhere, meaning that U.S. regulators will depend on the cooperation of a vast array of foreign counterparts to ensure that these new forms of dollars are just as trustworthy as bank deposits or good old cash. Enforcing regulations on stablecoins would be a mammoth task in the best of times, but it will be further complicated by the Trump administration’s policy unpredictability, hostile approach to trade, and distaste for regulation. Instead of collaborating with the United States to further entrench dollar dominance, even the friendliest U.S. allies may turn a blind eye to unscrupulous operators or undercut dollar stablecoins by giving preference to digital currencies issued by their own central banks. Unless Washington works deliberately and diligently to coordinate enforcement of U.S. rules, the technology may only accelerate the fragmentation of global financial markets.

CURRENCY SWAP

Trump has advanced conflicting views on whether dollar dominance serves the U.S. national interest. During his 2024 presidential campaign, he argued that the dollar’s preeminent role as the world’s currency has distorted its exchange rate and hurt U.S. businesses’ competitiveness. Once he became president, he vowed to punish countries that tried to undermine the dollar’s dominance, although this so far remains an empty threat.

But markets, not individual leaders, largely determine which currencies offer the best store of value and most reliable means of exchange. The United States still boasts the deepest and most sophisticated financial markets, the world’s most innovative companies, and a largely independent set of courts and regulators, all of which continue to undergird dollar dominance. Dollars still account for more than half of global foreign exchange reserves and export invoicing and roughly 90 percent of foreign currency transactions.

Dollar reserves have been in decline since roughly 2000, however, when they represented nearly 70 percent of total holdings. Some of this shift simply represents a natural effort by countries to diversify their holdings. But Washington’s unpredictability—and its efforts to use its economic might to sanction or even bully friends as well as rivals—has triggered an accelerating search for alternatives. China has sought to boost the usage of the renminbi through its Belt and Road loans and central bank swap lines. Chinese and Russian regulators have established alternative payment systems to bypass the Western-dominated SWIFT network. Europe even attempted a barter-like experiment to trade with Iran after the first Trump administration reimposed sanctions. European officials are now exploring ways to reduce their markets’ overwhelming dependence on U.S. firms such as Mastercard and Visa for payment flows.

Stablecoins are meant to be as reliable as cash in a wallet.

But the biggest challenge to the dollar may lie ahead, as the cryptocurrency revolution gains momentum. Bitcoin’s 2009 launch spawned an eclectic industry that now includes a vast array of offerings, from popular alternative cryptocurrencies such as Ethereum to entertaining “memecoins.” By moving money through the blockchain (a set of digital ledgers distributed across computer networks worldwide), such currencies offer potentially enormous benefits.

Money can move without the kinds of delays and fees associated with bank accounts and credit cards, and international transfers need no longer depend on a labyrinth of corresponding banking relationships. Multinational corporations can, in theory, much more easily manage liquidity across jurisdictions, and remittances can be sent across national borders instantly and essentially without charge. Households in developing countries can easily protect their savings in dollar-linked assets, reducing their exposure to their own currencies’ volatility. Stocks, bonds, and even real estate can be turned into digital tokens so that transfers can move along the same virtually frictionless rails. The value of unbacked cryptocurrencies such as Bitcoin can experience wild variations, but stablecoins and central bank digital currencies are meant to be as reliable as cash in a wallet.

Currently, there are two dominant stablecoin issuers. Tether, a firm domiciled in El Salvador, has issued a dollar stablecoin with a market capitalization of $187 billion backed by U.S. treasuries as well as corporate bonds, Bitcoin, and gold. Circle, which prides itself on being domiciled in the United States (and therefore fully subject to U.S. regulations), has issued $78 billion worth of stablecoins backed primarily by cash and U.S. treasuries. Thus far, the total value of stablecoins in circulation is only 0.5 percent of the U.S. stock exchange’s market capitalization, according to International Monetary Fund estimates. But that represents a doubling of value since 2024. And Citi forecasts that the stablecoin market could grow more than tenfold by 2030.

COIN OF THE REALMS

Trump’s second-term turn in favor of cryptocurrency is no surprise: cryptocurrency executives poured money into his 2024 presidential campaign and financed the launch of his family’s cryptocurrency ventures. Along with releasing memecoins named for himself and First Lady Melania Trump, the president and his three sons founded World Liberty Financial, which issued digital tokens currently valued at $4.4 billion and has launched its own dollar stablecoin. During his second term, the president also expressly prohibited the Federal Reserve from developing a central bank digital currency, bowing to concerns of a vocal minority about threats to personal privacy.

The Genius Act, which Trump signed in July 2025 surrounded by cryptocurrency executives—some of whom were major campaign donors—provides the first U.S. regulatory framework for stablecoins. It imposes transparency rules and independent audits on companies that issue them and requires that they be backed one to one with cash, U.S. Treasuries, or other high-quality liquid assets. To limit flight from traditional banks and investment vehicles, the Genius Act prohibits dollar stablecoin issuers from paying interest and provides no government insurance as a backstop. The legislation demands compliance with U.S. anti-money-laundering rules, and it requires issuers to help enforce U.S. sanctions by blocking transactions or freezing assets, as banks already do. Even with all these restrictions, stablecoins look like a highly profitable business, since issuers pocket all the interest earned on their reserves. Large U.S. banks, retailers, and payment firms are rapidly moving to launch their own stablecoins: Bank of America, Deutsche Bank, and Goldman Sachs announced plans to issue stablecoins in several currencies as part of a consortium of nine global banks.

If dollar stablecoins become as attractive as the Trump administration hopes they will, private firms worldwide will be able to effectively issue and process the cryptocurrency equivalent of U.S. currency. The most responsible issuers will do their best to meet the U.S. government’s legal requirements, because trust in their individual offerings depends on public trust in all stablecoins. Much as foreign banks enforce U.S. sanctions so they can retain access to the American market, most of these foreign stablecoin issuers will want to stay in U.S. regulators’ good graces. But because many stablecoin firms will not have a U.S. presence, they will not need to be overly committed to the latest rules from Washington dictating which assets they should hold, what reports they must file, or which sanctions violations they must report.

And the stiffer the competition becomes, the greater the pressure will be to bend the rules. If stablecoin issuers cannot pay interest, they may offer other incentives—such as loyalty points or cash-back provisions in partnership with distributors—to make their coins more attractive. Even if they hold enough liquid assets to match their issuance, their operations may not be able to handle massive redemptions in a crisis. Some stablecoins could start to trade at a premium if the issuer offers substantial incentives or a discount if questions arise about the collateral that stands behind the stablecoins in circulation.

Some issuers will simply flout U.S. regulations deliberately, offering false guarantees or promising unsustainable incentives. In jurisdictions that already struggle to contain tax evasion, dollar stablecoins may offer a new vehicle to avoid government attention. And they will undoubtedly weaken many countries’ ability to maintain financial stability and set interest rates as currency flows out of their banking systems.

PENNY WISE, POUND FOOLISH

It will be hard enough for Washington to enforce its stablecoin regulations in friendly jurisdictions. But the greater difficulty for U.S. regulators will be to maintain influence over these evolving payment rails in countries that are uncomfortable with or openly hostile to U.S. dollar dominance. Many governments already wonder why they should reinforce that dominance at a time when Washington is reordering its own priorities.

As the Trump administration moves to coddle Moscow, European leaders have been developing plans to address what they call “cryptomercantilism,” or what they see as U.S. plans to boost the dollar’s influence at Europe’s expense. The European Central Bank has been working assiduously to launch its own central bank digital currency, which would boost global usage of the euro as an alternative to the dollar. Now European finance ministers are discussing how to change their regulations to speed the issuance of euro-linked stablecoins.

China, meanwhile, has banned the use of all cryptocurrencies within its territory. Officials have been developing a mechanism to settle international payments through central bank digital currencies that avoid the dollar altogether. The digital yuan, which Beijing introduced in 2020, has struggled to gain domestic acceptance, but the People’s Bank of China is now championing a project called mBridge, which would allow for direct payments between Chinese banks and banks in Hong Kong, Saudi Arabia, Thailand, and the United Arab Emirates. Similar projects have already attracted participation from Australia, France, Malaysia, Singapore, and Switzerland. These mechanisms allow a buyer in Thailand to send baht and a seller in Saudi Arabia to receive riyals without any need to exchange into dollars along the way.

European finance ministers want to speed the issuance of euro-linked stablecoins.

The future of stablecoins bears worrying similarities to the early history of the Internet. Instant access to news and data was meant to deal a blow to censorship and accelerate the integration of societies worldwide. Instead, it appears to have reinforced populism and political divisions. Instant payment mechanisms promise amazing efficiencies and unprecedented financial inclusion but may also lead to more fragmented financial markets. To avert this outcome, at a minimum, the U.S. Treasury will need to convince finance ministries around the world that this new form of dollar does not undercut their own currencies or destabilize their financial systems. And U.S. regulators will need to muster the resources to build tighter relationships with their counterparts in key foreign jurisdictions to make sure that the dollar stablecoins issued there are fully backed and that U.S. rules and sanctions are reliably enforced. If enforcement across other jurisdictions becomes disjointed and money starts flowing through poorly regulated dollar-backed stablecoins, the potential for stablecoins to strengthen the position of the dollar will be lost. Worse yet, disagreements over stablecoin enforcement may further undermine global cooperation on sanctions enforcement through even traditional banking channels.

This may prove difficult for an administration that so volubly promotes the United States’ interests first, seemingly with little regard to other countries’ legitimate concerns. But global financial markets function smoothly only when all participants agree to enforce the same rules. If Washington can’t secure that cooperation, then the Trump administration’s stablecoin push may deal the United States—and the dollar—another self-inflicted wound.