Preserve the Dollar’s Reserve Currency Status With Stablecoins

For years, government has interfered with the development of some of the most promising financial innovations in a generation—namely digital assets and the other blockchain-based technologies that have emerged over the last decade.

It has done so through regulation by enforcement instead of formal rulemaking, restrictions on financial institutions engaging with digital assets, and efforts such as Operation Choke Point 2.0, with financial regulators pressuring financial institutions to debank this emerging industry.

Fortunately, the new Congress and administration is helping the US move faster than the traditional speed of government. Prioritizing world leadership on digital assets and emphasizing stablecoins will help preserve the dollar’s critical reserve currency status.

In his first week in office, President Donald Trump issued an executive order promoting the development of digital assets and vowed to make the US the “crypto capital of the world.”

Congress has been focusing on digital assets as well. The Senate Banking Committee on May 19 passed the GENIUS Act, which after a temporary setback is now headed to the full Senate. The House Financial Services Committee last month passed their version of stablecoin legislation with the STABLE Act. Together, these two pieces of bipartisan legislation represent a new high watermark in efforts to advance productive crypto public policy.

These measures lay out a missing legal framework for stablecoins—a type of privately issued digital asset that aims to maintain a stable value by being linked to an underlying asset such as the dollar or other fiat currency.

Both bills enjoy a degree of bipartisan support but, regrettably, the Senate bill suffered a setback earlier this month when it was blocked from moving forward to the full Senate. This was principally due to Democratic objections to Trump family crypto interests as opposed to the substance of the bill.

If Congress can come to agreement, which clearly is not yet a foregone conclusion, the president has indicated he’ll sign the bill into law. He should.

Trump has been busy with a global trade war that’s still unlikely to end soon—or well. It’s injecting a level of uncertainty into the economy on par with Covid-19 and the 2008 financial crisis. The ultimate effect on the dollar remains unknown, but the immediate effect is a significant weakening.

This year, foreign government holdings of US treasuries sunk to the lowest level since March 2020 as the BRICS and other countries pursue de-dollarization. The trade war could accelerate a move away from the dollar and the recent selling of US treasuries by foreign investors could be a sign this is happening.

Total stablecoin transfer volume exceeded $27 trillion in 2024, more than the combined volume of Mastercard and Visa. Today, 99% of stablecoin market capitalization is pegged to the dollar. These digital assets are creating enormous new demand for US treasuries.

In fact, the world’s largest stablecoin issuer was the seventh largest purchaser of US Treasury debt in 2024, surpassing Germany, South Korea, and Canada. This newly created demand can help fill the void left by foreigners exiting US debt markets.

The financial sector remains one of our economy’s largest and most important, and the US is a net exporter of its services. Let’s hope we can remain so during a trade war.

Globally, stablecoins already represent a $230 billion industry that continues to grow. Unfortunately, even though 99% of stablecoins are dollar-denominated, other governments have taken the lead on creating rules of the road for this industry.

The EU beat the US to the punch with its Markets in Crypto Assets regulation last year while Singapore finalized a policy framework in 2023. The US needs to catch up. Industry brain drain is a real risk to our leadership in technology and financial services, something we saw during the last administration and something we can ill afford to let continue.

Skeptics assert there are inherent risks with stablecoins because of potential fraud and illicit finance uses, clearing and settlement risks, and even systemic risks to the financial system. These are real considerations, just as they are for most other financial assets.

But it’s also true we risk diminished economic growth and innovation through continued legislative and regulatory sclerosis.

Both the GENIUS Act and the STABLE Act importantly place requirements on issuers around their operations, capital, liquidity, and risk management while defining the types of reserves that can be held within these products. These are reasonable guardrails that should encourage continued growth in this space.

There are other issues Congress needs to address to ensure American leadership in digital assets. For example, the House Financial Services Committee passed a bill to prevent the Federal Reserve from developing a Central Bank Digital Currency.

In stark contrast to the private and distributed nature of cryptocurrencies such as Bitcoin, a CBDC would be a direct liability of the Federal Reserve and could lead to every citizen having their financial transactions recorded on a government database.

With dozens of countries rolling out or studying CBDCs, it will be a feature and not a flaw of the US ecosystem to embrace decentralization and ensure greater financial privacy.

Congress also should move forward with digital asset market structure legislation this year. There remains too much regulatory ambiguity surrounding how digital assets are traded and which federal regulator makes the rules.

With the uncertainty and economic damage of a global trade war, the US must remain the world leader in technology and financial services. The next step in maintaining this leadership is for Congress to send the president stablecoin legislation. Time is of the essence, because what little bipartisanship exists in Congress is already waning with each passing day.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Jeb Hensarling is an advisory council member to Americans for Prosperity and an economics fellow at the Cato Institute. He was chairman of the House Financial Services Committee from 2013 to 2019.

Gerry O’Shea of Hashdex Asset Management contributed to this article.

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