The Trump administration is working on a global stablecoin plan to consolidate U.S. dollar dominance

The issuer's total holdings of sovereign bonds are approaching $200 billion, making it one of the top 20 holders of such debt and exceeding foreign exchange reserves in several countries. This shift has transformed the US dollar from a purely crypto-trading instrument into a factor affecting global capital flows that both the International Monetary Fund (IMF) and the Bank for International Settlements (BIS) have warned against.

Reserve mechanism: stablecoin Why hold so much US debt

The basis of confidence in stablecoin is whether the holder can at any time redeem token as fiat currency on a 1:1 basis. For this, the issuer needs to maintain adequate reserve funds: hold an equivalent amount of dollars on one hand and allocate security assets such as United States Treasury bonds for interest income on the other hand.

This reserve structure now has a legal basis. Under the United States Genius Act, issuers are required to hold US dollars and short-term government bonds as reserves. In other words, the more widespread stablecoin is, the greater the demand for purchasing U.S. Treasuries will be.

United States Treasury position: consolidating the dominance of the US dollar

United States Treasury Secretary Scott Bessent recently identified the dollar-supporting model stablecoin as a tool to support US dollar hegemony. He cited data showing that USD accounts for nearly 90% of global foreign exchange transactions.

For the United States government, stablecoin is equivalent to extending the reach of dollars where conventional banking systems cannot: any user with an smartphone can directly hold a dollar slot through stablecoin , without having to open a dollar bank account.

Emerging market risks: capital flows that bypass the banking system

The problem lies on the other side of the coin: stablecoin could be a pressure booster for emerging economies that are already vulnerable to capital outflows and current account deficits.

stablecoin is based on blockchain transfers and bypasses traditional banking channels, which makes it harder for central banks and governments to monitor and intervene in cross-border money flows. Once the US dollar becomes widely used in daily transactions, there may be ongoing devaluation pressures that residents and businesses will be inclined to exchange their handheld fiat currency s for assets worth $ on-chain .

The IMF and the BIS have repeatedly warned that in times of market stress, a peg to the dollar could accelerate capital flight from emerging markets, leaving these countries and financial stability more vulnerable.

Follow-up

The size of the stablecoin reserve is still growing, and its likely ranking among U.S. bondholders continues to rise.[citation needed] How issuers' compliance reserves requirements will be enforced following the collapse of the Genius Act and whether national regulators will introduce capital management measures for $ on-chain in assets will be key to seeing where this issue is headed. For ordinary users, understanding the structure of the reserves behind the US$ stablecoin + short-term bonds would be a first step in judging their risk.[22]