In Brief
US dollar-pegged stablecoins are emerging as strategic tools that could reinforce or reshape the US dollar’s global dominance. By enabling US dollar-linked transactions outside traditional financial systems, stablecoins extend the dollar’s reach but also challenge US regulatory control. While the Donald Trump administration aims to harness US dollar-pegged stablecoins through legislation to bolster monetary influence, US legislation will not stop unregulated tokens from continuing to circulate globally. The global response to stablecoins is varied — the European Union is working to protect monetary sovereignty, while Singapore and Hong Kong support regulated adoption. In an increasingly fragmented global financial system, stablecoins could help to sustain US dollar dominance.
In recent years, policy discussions have focused on the United States’ increasingly assertive trade policies and their impact on global supply chains and economic stability. A new dimension to this debate is the rise of US dollar-pegged stablecoins and the digital financial infrastructure that supports them. The Trump administration’s promotion of crypto assets and US dollar-pegged stablecoins, combined with regulatory moves in Singapore and Hong Kong, has fueled worldwide interest.
Stablecoins are digital tokens pegged to another asset, often a fiat currency. US dollar-pegged stablecoins, dominated by Tether’s USDT and followed by Circle’s USDC, are backed one-to-one with dollars or liquid dollar assets and are redeemable at face value, even if they occasionally deviate slightly from the peg.
They function as near-cash equivalents — programmable, transferable and globally accessible. These tokens are widely used for settling crypto asset trades, powering decentralised finance, facilitating international remittances and providing a dollar alternative in some developing economies. Their 24/7 transferability, near-instant settlement and low transaction costs also make them attractive for foreign exchange trading and cross-border settlements, especially in markets with limited access to US banking.
The stablecoin market now totals around US$250 billion, backed by roughly US$180 billion in US Treasuries and other short-term liquid assets. Structurally, dollar-pegged stablecoins resemble US government money market funds, which also hold Treasuries and short-term instruments. This hybrid nature — blockchain-native yet dollar-backed — allows stablecoins to move freely across borders, bypassing some of the frictions of traditional banking. But it also complicates regulatory oversight and creates the risk of sudden capital flight in periods of market stress.
Money market funds are federally regulated and operate within the Federal Reserve’s monetary policy framework, including access to overnight repurchase facilities. By contrast, most stablecoins — particularly USDT — circulate outside the US regulatory perimeter. They move on decentralised blockchains, are held by anonymous users and are often backed by Eurodollar assets. USDC is a partial exception — its issuer, Circle, is regulated primarily through state-level money transmitter licenses that impose certain reserve and disclosure requirements.
The autonomy of these issuers raises concerns for monetary policy transmission. Anyone with a smartphone can transact in dollar-pegged tokens without interacting with the US banking system. In times of stress, mass redemptions could trigger fire sales of US Treasuries, destabilising short-term funding markets, weakening the Federal Reserve’s policy tools and potentially spreading shocks across global financial markets.
Recognising these risks, the US Congress passed the GENIUS Act in July 2025, scheduled to take effect in early 2027. The law creates a unified framework for dollar-pegged payment stablecoins within the United States. It requires all issuers, including foreign ones, to fully back their tokens with short-term US Treasuries or dollars and to submit monthly disclosures on reserve composition. The bipartisan law reflects growing recognition that stablecoins are not merely financial instruments but also strategic levers of monetary and geopolitical influence.
US policymakers hope that tightening regulations will encourage adoption of safer, compliant stablecoins domestically and internationally, thereby reinforcing the dollar’s reserve currency status. Yet unregulated tokens will continue to circulate via peer-to-peer platforms, private wallets and over-the-counter networks — beyond the immediate reach of US authorities.
International regulators are responding differently. The European Union has taken a defensive stance under the Markets in Crypto-Assets framework, viewing non-euro stablecoins as threats to monetary sovereignty and capping their circulation within the bloc.
Singapore and Hong Kong, by contrast, are pursuing more integrative approaches. Both have launched licensing regimes that emphasise reserve quality, transparency and AML/KYC compliance while supporting innovation. Singapore’s framework initially covers stablecoins pegged to G10 currencies and the Singapore dollar, whereas Hong Kong’s regime applies to all single fiat currency-pegged stablecoins. The expected implementation of the US GENIUS Act may indirectly shape Asian policy. Regulators in Singapore and Hong Kong could align with US standards to facilitate cross-border use of compliant dollar stablecoins — potentially reinforcing US monetary dominance.
US dollar-pegged stablecoins are more than digital cash substitutes — they are creating new channels for cross-border finance and challenging existing regulatory models. Whether the future brings a fragmented, multi-currency stablecoin ecosystem or further entrenches US dollar dominance will depend on how regional frameworks interact with US policy.
In the end, stablecoins embody the tension between innovation and monetary sovereignty. They offer efficiency gains and financial inclusion, yet also carry the risk of amplifying volatility in global markets — leaving the ultimate balance between US dominance and a fragmented financial order still uncertain.
