How stablecoins are extending the monetary power of the United States

“Even as traditional indicators point to gradual de-dollarisation, a parallel shift is underway in digital finance. Thunj Chantramonklasri and Ryan Leary examine how the rapid rise of dollar-pegged stablecoins is creating a new form of “digital dollarisation”, expanding the reach of the country’s monetary power. Stablecoins – digital tokens designed to maintain a stable value, most commonly pegged one-to-one to the US dollar and backed by reserve assets – are increasingly connecting traditional finance and cryptocurrency. In turn, this is creating new demand for the short-term Treasuries that underpin their value. Drawing on on-chain analytics and institutional data, this article shows how digital dollarisation is affecting global monetary dynamics by complicating policy in vulnerable economies while creating new channels through which crypto market volatility can spill over into money markets. An increasingly important monetary network According to blockchain transaction data from Visa’s Analytics Dashboard (See Figure 1), stablecoin transaction volume (excluding bot-driven and high-frequency trading activity) grew from about $565 billion in 2020 to about $11 trillion in 2025, an annual increase of roughly 80 per cent. Total transaction volumes processed across Visa’s network were about $11 trillion in 2020 and $17 trillion in 2025. In just five years, the relative size of stablecoin transactions compared with the world’s largest payment network grew from 5 per cent to 65 per cent. Figure 1: Stablecoin transaction volumes are rapidly converging with Visa’s network scale Adjusted transaction volumes (USD trillions) and relative size, 2020–2025 Privately issued stablecoins are increasing the dollar’s global reach Stablecoins are reshaping global monetary dynamics by creating a new digital channel through which the dollar circulates across borders. As of November 2025, 99 per cent of all stablecoins in circulation were dollar-denominated and two private issuers dominated the market. As of the beginning of March 2026 Tether’s USDT and Circle’s USDC jointly comprised about 84 per cent of total stablecoin market capitalisation. Research from the International Monetary Fund (IMF) estimates that while the highest stablecoin activity involving centralised (or “traditional”) cryptocurrency exchanges was in North America and Asia-Pacific-based exchanges, much of this activity is likely to connect to users in emerging markets. Stablecoin flows are especially large relative to the size of the economy in Latin America and the Caribbean, and in Africa and the Middle East, where they reach roughly 7–8 per cent of gross domestic product. As shown in Figure 2, while more digital dollars flowed out of North America than into it, Latin America and the Caribbean and Africa and the Middle East received more than they sent. The IMF research also shows that when the American dollar strengthens, stablecoin outflows from North America increase, suggesting that as their local currencies weaken, households and firms in such economies turn to dollar-backed digital assets as an alternative to their domestic currency. Figure 2: North America is a net exporter of stablecoins to the rest of the world Stablecoin net flows, 2024 (USD billions) In economic terms, this pattern suggests that stablecoins expand the reach of the dollar, effectively enabling the currency to be exported outside traditional banking systems. This includes flows to countries where there is substantial demand for a stable currency because of high domestic inflation, foreign exchange control and due to the costs and challenges of traditional methods of acquiring dollars. (It is worth noting that the IMF paper only examined wallets linked to the Ethereum blockchain. The Solana and Tron blockchains were excluded and are estimated to comprise around 40 per cent of global stablecoin transaction volumes in 2025 . Solana and Tron are the blockchains of choice in emerging economies which suggests that the extent of digital dollarisation may be significantly higher than IMF estimates indicate.) Challenges for capital controls and monetary policy sovereignty The rapid growth of dollar-backed stablecoins is reshaping monetary dynamics by expanding the global reach of the dollar while introducing new risks for central banks and financial stability. As noted by the IMF , greater use of stablecoins can encourage a shift away from domestic currencies towards dollar-linked assets, due in part to their accessibility and lower transaction costs relative to physical cash or foreign currency deposits. Should a substantial share of economic activity shift to dollar stablecoins, a central bank’s control over domestic liquidity would suffer, weakening its ability to influence inflation and economic activity through interest rates. The reduced demand for local currency would also decrease the revenue governments can raise from issuing money. The IMF finds that these risks are more pronounced in regions where macroeconomic stability is weaker and access to foreign currency is more constrained . Stablecoin holdings in Africa and the Middle East and Latin America and the Caribbean have grown from near zero in 2020 to between 2 per cent and 3 per cent relative to total deposits by 2024 – still small but growing quickly enough to signal rising risk if adoption continues. While stablecoin usage remains highly concentrated in crypto trading today, a shift towards everyday payments would weaken the effectiveness of monetary-policy and complicate central banks’ ability to manage exchange rates and capital flows. Some evidence suggests this may already be underway in developing economies. Cross-border stablecoin usage also introduces new frictions for policymakers. Because transactions can occur outside regulated financial intermediaries, they are more difficult to monitor, including with respect to compliance with requirements such as anti-money laundering rules. America, whose currency underpins these systems and stands to benefit from increased monetary power, is not insulated from their effects. Major dollar-backed stablecoins are typically backed one-to-one with highly liquid dollar assets, primarily short-term Treasuries and related instruments, linking their growth directly to demand for safe dollar assets. Empirical evidence from the Bank of International Settlements shows that large inflows into stablecoins are associated with lower short-term Treasury yields. This suggests that stablecoins can act as a marginal demand channel for government debt, creating a link through which crypto market developments can influence American money markets and monetary policy conditions. Periods of stress or large-scale redemptions can force issuers to liquidate reserve assets, potentially transmitting cryptocurrency market volatility back into short-term funding markets, a risk that will grow as adoption expands. A shifting global monetary landscape Presently, dollar stablecoins dominate the market, with non-dollar alternatives accounting for only a marginal share. But economies that combine strong crypto adoption and regulatory support may emerge as challengers. Singapore’s XSGD and the United Arab Emirates’s AE Coin and DDSC illustrate this trend. While these markets are small, they sit at key global trade hubs. Around 70 per cent of maritime trade passes through the Singapore Strait. This highlights the broader challenge for policymakers: managing the risks of stablecoin adoption while weighing the strategic implications of competing currency-backed digital systems. When more people and businesses around the world use the dollar, it benefits America’s economy by keeping demand for dollars and government debt high, which helps the country borrow more cheaply and reinforces its influence over the global financial system. At the same time, the rise of privately issued dollar stablecoins creates risks both domestically and globally by shifting parts of the dollar system outside traditional banking and regulatory oversight, potentially weakening financial stability and complicating monetary policy. Outside of America, dollar-linked stablecoins pose additional risks by accelerating dollarisation and increasing exposure to volatile cross-border capital flows. Emerging non-dollar stablecoins also point to a more competitive and fragmented digital currency landscape. Taken together, these developments highlight a shifting global monetary landscape in which private digital currencies extend the reach of the dollar while introducing new forms of currency competition and policy trade-offs. This article gives the views of the author, not the position of LSE Business Review or the London School of Economics. You are agreeing with our comment policy when you leave a comment. Image credit: main image created by author using ChatGPT The post How stablecoins are extending the monetary power of the United States first appeared on LSE Business Review .

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