Stablecoins, Tokens, and Global Dominance

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Stablecoins, Tokens, and Global Dominance

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Bibliographic details

• Authors: HELENE REY
• Published: September 3, 2025

Overview

• Technology is poised to shake up the international monetary and financial system; outcomes depend on whether the public sector shapes standards or the private sector sets them first, as well as on regulations, international cooperation, and resilience to cyber risk.
• Effects on capital flows could be large and include impacts on fiscal accounts, geoeconomic fragmentation, exchange rate volatility, and the internationalization of major currencies.
• Stablecoins and tokenization are central innovations: stablecoins bridge conventional finance and crypto; tokenization records claims on assets on programmable platforms (Agur and others 2025).

Implications of stablecoins

• Stablecoins promise stable value relative to fiat currencies by holding liquid assets such as US Treasuries and operate on blockchains.
• Features and current patterns:
  • Share similarities with money market funds and “narrow banking” (100 percent reserve banking), though typically do not offer interest payments.
  • Almost all stablecoins are pegged to the US dollar, but most transactions occur outside the United States.
  • Used as on- and off-ramps to crypto assets (often for speculative investments) and increasingly as a cross-border payment instrument.
  • Useful where domestic financial systems are weak, costly, or where international transactions are regulated (capital controls or sanctions).
• Potential negative consequences:
  • Dollarization and its side effects; financial stability risks; hollowing out of the banking system; currency competition and instability; money laundering; fiscal base erosion; privatization of seigniorage; intense lobbying.
• Potential positive consequences:
  • Quicker and cheaper cross-border payments, which matter for remittances.
  • Citizens in poorly governed countries could gain access to more stable and convenient means of payment and stores of value.
• Who controls payment data and the implications for US dominance in sanctions enforcement are key governance questions.

Capital flows and intermediation

• US dollar stablecoins may inherit network externalities and credibility from the dollar, enabling global medium-of-exchange use.
• They can supersede correspondent banking and messaging systems such as SWIFT, potentially speeding and lowering the cost of cross-border transactions.
• Cost reductions may partly reflect weak know-your-customer and anti–money laundering compliance if regulators lag.
• Stablecoins are attractive for evading sanctions and facilitating illegal transactions; they can erode tax bases by channeling illicit or sanctioned flows.
• Systemic risks and banking impacts:
  • Massive worldwide use of US dollar stablecoins could hollow out banking sectors via deposit competition.
  • Bank-issued stablecoins could curb lending and increase US Treasury holdings on bank balance sheets, resembling narrow banking.
  • Run risks exist if backing is questionable; monetary policy transmission and macroeconomic stabilization could be impaired by dollarization.

Privatization of seigniorage

• Wide adoption of US dollar stablecoins for payments would amount to privatization of seigniorage by global private actors.
• Fiscal and balance-sheet effects:
  • Increased international adoption of dollar-backed stablecoins could lower demand for non–US government bonds and raise demand for US Treasuries.
  • The magnitude depends on substitution patterns between dollar-backed crypto assets and money market funds and deposits in local currencies and dollars.
  • Tether and USDC already hold collectively more US Treasuries than Saudi Arabia (as shown in Chapter 2 of the IMF’s July 2025 External Sector Report).
  • Growing demand for Treasuries and US external safe liabilities could reinforce the “world banker” balance sheet of the United States and stabilize US finances and external deficits.
• Political economy implications:
  • Significant wealth accumulation by a few companies and individuals due to network externalities, leading to increased lobbying for deregulation and opacity.
  • Threats to public goods and national macroeconomic policy imply measuring crypto flows, use, and regulation is a policy priority (Reuter 2025; Cardozo and others 2024).
  • Data collection on crypto capital flows by international organizations and country authorities is still in its infancy.

Tokenization and integration

• Tokenization could unify messaging, reconciliation, and asset transfer on a single ledger where CBDCs also play a role.
• Potential system changes:
  • Different countries’ CBDCs could be linked for efficient cross-border transactions (Bank for International Settlements view).
  • A blockchain that moves money, assets, and information securely and automatically could reshape global capital flows.
• Access and market structure:
  • Interoperability and new trading platforms for global assets (stocks, bonds, commodities) could open access for individual investors anywhere.
  • Decentralized finance (DeFi) platforms could amplify peer-to-peer benefits by cutting out intermediaries such as banks and brokers.
  • Tokenization may expand financial integration while introducing well-known challenges.

Currencies and financial stability

• Greater substitutability across currencies could increase competition and induce large portfolio shifts across currency networks.
• Forces at play:
  • Increasing returns to scale and potential push toward a single unit of account; the incumbent dollar has a head start.
  • Strategic value of payment data and sovereignty concerns may fuel fragmentation and restrictions on some currencies.
  • Programmable capital controls and granular restrictions on wallets are possible; a more multipolar international monetary system could follow.
• Fragility risks:
  • Multiple connected networks and proliferating private issuers could fracture monetary and financial systems.
  • Private monies historically are unstable without sovereign backing and credibility, leading to runs when unregulated.
  • Sovereign currencies may also be unstable if fiscal institutions lose credibility.
• International policy cooperation and regulation are essential to prevent excessive fragmentation and financial fragility.

Integrity privilege and cyber risks

• Loss of data integrity (for example, via quantum computing threats) could produce greater instability and confidence crises.
• Security concerns:
  • The US Commerce Department’s National Institute of Standards and Technology warned in 2016 that quantum computers may soon solve problems conventional computers struggle with.
  • Fusa (2023) emphasizes quantum computers will be able to break many public key cryptosystems currently in use.
  • Development of post-quantum cryptography (secure against quantum and classic computers and interoperable with existing protocols) is progressing but outcome is uncertain.
• Implications:
  • Currency networks most exposed to hacking and loss of integrity could suffer massive confidence crises and capital outflows, potentially triggering financial crises.
  • The currency network with the smallest attack surface should harvest a premium and reduce financing costs—termed an “integrity privilege.”

Conclusions and policy priorities

• The technological impact on the international monetary and financial system will be profound but hard to forecast; shaped by unpredictable innovations, regulatory policies, and lobbying groups.
• Likely risks and outcomes:
  • Major financial stability risks, including increased exchange rate volatility and threats to public finances in many economies.
  • Competition across currency networks and large wealth transfers that will alter the political economy of regulation.
• Policy priorities:
  • International policy cooperation and regulation are essential to mitigate fragmentation and financial fragility.
  • Measuring crypto flows, use, and global regulation should be a policy priority given threats to core macroeconomic policies and financing of national and global public goods.

Source: Stablecoins, Tokens, and Global Dominance; HÉLÈNE REY; F&D Magazine; September 2025.

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