It goes without saying that we are at a pivotal moment for the global payments ecosystem. Emerging technologies presenting seamless, real-time, and transparent digital movement of payments across borders, coupled with new and expanding financial architectures that are increasingly being folded into broader strategic geopolitical shifts and realignment policies, amid heightened competition (with both friendly and adversarial countries) that could jeopardize the U.S. dollar’s pre-eminent global position as the world’s reserve currency are all converging, simultaneously. Capturing the opportunities presented by this convergence are immense; so too are the potential economic and monetary headwinds from failing to prioritize and instill U.S. leadership in the digital payments space race. While the U.S. has been slow to get out of the gate on payment stablecoin policy in comparison to other jurisdictions, the recent advancements of both the STABLE Act and GENIUS Act provide Congress with a unique opportunity to bolster U.S. competitiveness and solidify the dollar’s role in the digital era.
The bipartisan votes to move both the GENIUS Act and STABLE Act through the Senate Banking Committee and the House Financial Services Committee, respectively, represent a seminal moment for payment stablecoin policy in the U.S. For the first time ever, both committees successfully moved payment stablecoin legislation that provides for a robust federal framework responsive to the next evolution of payments. As committee staff continue to work tirelessly to reconcile both pieces of legislation – legislation that The Digital Chamber has been actively engaged in – it is worth noting that the objectives of both legislative texts are not to simply cater to the demands of industry, but rather to redefine, reimagine, and reinforce U.S. competitiveness and the global role of the U.S. dollar in the digital era. As Rep. Bryan Steil (R-WI) aptly put it: “This legislation is a foundational step towards securing the future of financial payments in the United States and solidifying the dollar’s continued dominance as a world reserve currency.”
A ‘foundational step’ that opens the door to a wide variety of opportunities.
Take, for instance, the opportunity to move the legislative conversation away from merely speaking about past incidents and hypothetical situations to firmly establishing a federal framework that seeks to address the challenges raised by those past incidents and hypothetical situations. Policymakers and regulators have raised, and continue to raise, concerns about the various risks associated with payment stablecoins, including just how ‘stable’ stablecoins really are. Reports from various jurisdictions and multilateral forums further amplify these concerns – which are justifiably raised, given the demise of past stablecoin issuers and the widespread wealth destruction resulting from the associated fallout. But it is disingenuous to the broader policy debate to raise these concerns without also discussing the regulatory regimes already in place – whether at the State level, in international jurisdictions, or through emerging policy frameworks, such as the STABLE Act or the GENIUS Act. Any serious analysis of the risks and challenges stablecoins may pose must weigh them against these existing and developing standards. Establishing a federal framework that can responsibly address such risks and hypotheticals, while establishing robust protections for users, could put an end to merely talking about one side of the equation.
Furthermore, we cannot ignore the opportunity to create alternative avenues to purchase U.S. debt. As the U.S. Treasury recently highlighted in its October 2024 report to the Treasury Borrowing Advisory Committee, or TBAC, more than $120 billion worth of collateral backing stablecoins currently in circulation are directly invested in U.S. Treasuries (approximately 2.5% of U.S. Treasury bills (T-bills)). Treasury acknowledged in the report that the structural demand for U.S. Treasuries “may increase as the digital asset market cap grows, both as a hedge against downside price volatility and as an ‘on-chain’ safe-haven asset.” Treasury also stated that the continued growth “in stablecoins, assuming the current trend in stablecoin collateral choices continues (or is forced by a regulator), will create structural demand for short-dated U.S. Treasuries − Recommended issuance should on the margin lean to a higher proportion of T-bills.”
Both legislative texts would require permitted payment stablecoin issuers to hold reserves that would include U.S. Treasuries. A recent report from Standard Chartered, as described in CoinDesk, found that a federal framework “would further legitimize the stablecoin industry” with the bank also estimating that total stablecoin supply could rise from $230 billion today to $2 trillion by year-end 2028. The bank also estimated that the increase in stablecoin issuance would require the additional buying of $1.6 trillion of Treasury bills over the next four years which “would be enough to absorb all the fresh T-bill issuance planned for the rest of Trump’s second term.” Overall, stablecoin issuers may become the second-largest buyers of T-bills after money-market funds, which currently hold around $2.4 trillion in T-bills. An alternative buyer of T-bills is sorely needed when you consider foreign central bank holdings of U.S. Treasuries continue to decline, as The Digital Chamber recently noted.
In addition to opening up alternative avenues to purchase U.S. debt, the development of a federal framework and the proliferation of US dollar-pegged payment stablecoins globally also presents alternative avenues to access and utilize U.S. dollars, especially in more marginalized communities or developing economies. In its report, Stablecoins: The Emerging Market Story, Castle Island Ventures not only found that the use cases for stablecoins were broadening beyond their primary use case in facilitating crypto transactions, but also that stablecoin activity was decoupling from broader crypto market cycles proving that stablecoin adoption “has moved beyond merely serving crypto users and trading use cases.” The study also found that of the non-trading use cases, currency conversion (to dollars) is the most frequently reported activity, followed by paying for goods, cross-border payments, and paying or receiving a salary. “Overall, 47 percent of respondents indicated that one of their major goals was saving money in dollars, 43 percent mentioned better currency conversion rates, and 39 percent said earning a yield. The findings are clear: non-crypto uses account for a meaningful share of stablecoin usage modes in the countries surveyed.”
These findings were also echoed in a recent blog post sponsored by the Payments Forum of the Federal Reserve Bank of Atlanta. Chris Colson writes:
“While it’s hard to predict whether or not stablecoins will become a universal payment method, the foundation is forming. Once seen as a hedge against crypto volatility, stablecoins are establishing themselves as a new, innovative payment type. These digital currencies are influencing the future of payments such as purchasing a coffee with a gift card purchased with stablecoins or buying a ticket for a movie at a discount.
One thing is certain: the future of payments looks a lot more stable.”
By opening up alternative avenues to purchase U.S. debt and broadening access to U.S. dollar-linked instruments, dollar dominance has taken hold in the payment stablecoin market with approximately 99 percent of the market referencing the U.S. dollar. As U.S. Treasury Secretary Scott Bessent recently remarked, “As President Trump has directed, we are going to keep the U.S. the dominant reserve currency in the world, and we will use stablecoins to do that.” Other countries – both allies and adversaries – are taking notice, however, which again highlights the need for the U.S. to get engaged through enacting a federal payment stablecoin regime.
Take, for instance, recent discussions in Europe where officials at the European Central Bank (ECB) are searching for answers to address the growing USD-referenced stablecoin market. Ulrich Bindeil, ECB Director General, Market Infrastructure & Payments, raised concerns about the lack of adoption of euro stablecoins during a European Parliament Economic and Monetary Affairs meeting, before recommending a review of the business case and the role of stablecoins for the international role of the euro, including potential adjustments to the EU’s regulatory framework and central bank rules. Similar concerns were raised by Piero Cipollone, Member of the Executive Board of the ECB, where he noted that recent measures taken by the Trump Administration to promote crypto-assets and US dollar-backed stablecoins “raise concerns for Europe’s financial stability and strategic autonomy.” He added: “They could potentially result not just in further losses of fees and data, but also in euro deposits being moved to the United States and in a further strengthening of the role of the dollar in cross-border payments. At the same time, private businesses are increasingly open to accepting stablecoins for customer payments, which could have far-reaching implications for monetary sovereignty.”
Or, take recent concerns expressed by a Chinese economic think tank about the proliferation of US dollar stablecoins globally. “Once the US dollar stablecoin links the international credit of the US dollar with the application scenarios of the virtual world more closely, it may greatly consolidate the hegemony of the US dollar,” the article states.
The STABLE Act and GENIUS Act present the opportunity for the U.S. to leap ahead of the competition and solidify the integrity and role of the US dollar in the digital era. The only question is, is the U.S. willing to lead, or cede?
