The rise of stablecoins may be opening a new chapter in an old monetary phenomenon: dollarisation. The underlying tension is straightforward: what may be a rational financial decision for an individual can become a macroeconomic challenge when millions of people make the same choice. This article examines how dollar-denominated stablecoins can protect savers while affecting monetary sovereignty, reinforcing the international role of the dollar, and raising questions about the accountability of private issuers.
From dollarisation to digital dollarisation
Dollarisation occurs when people in a country increasingly use the US dollar alongside, or instead of, their domestic currency. Sometimes this process is official. Ecuador, for example, uses the US dollar as legal tender. More frequently, it happens informally. The domestic currency continues to exist, but households and businesses prefer dollars for savings, contracts or certain transactions because they trust the dollar to preserve its value more reliably.
Stablecoins can make this process much easier. Tokens such as Tether (USDT) and USD Coin are designed to maintain a value close to one US dollar, allowing users to hold and transfer dollar-linked value through a digital wallet rather than obtain physical banknotes or open a foreign-currency bank account.
This matters especially for emerging economies. The International Monetary Fund notes that currency substitution is particularly likely in countries facing high inflation, institutional fragility and weak confidence in the domestic monetary framework, and warns that stablecoins can spread rapidly through the internet and smartphones. Since approximately 98% of global stablecoin value is denominated in US dollars, what looks like a technological innovation could also become an extraordinarily effective channel for digital dollarisation.
Good for the saver, harder for the country
At the individual level, stablecoins can provide genuine benefits: where access to foreign currency or financial services is limited, they can offer a relatively stable store of value while facilitating international payments and remittances. For people facing high inflation or repeated currency depreciation, holding part of their savings in dollar-linked assets may therefore be a rational financial decision. However, if millions of households gradually move their savings from domestic currency into dollar stablecoins and businesses begin accepting them, prices, contracts and payments may progressively migrate towards the foreign currency.
At that point, a problem emerges. Monetary policy works primarily through the currency and financial system over which the central bank exercises influence. A significant shift towards foreign-currency stablecoins could therefore weaken its control over domestic liquidity and interest rates, reducing the effectiveness of monetary policy transmission. This is the practical meaning of diminished monetary sovereignty: the economy becomes more exposed to Federal Reserve decisions taken in response to conditions in the United States rather than its own.
Why the United States benefits
Washington sees the same phenomenon very differently. The international importance of the dollar has long provided the United States with considerable economic advantages, since global demand for dollars is accompanied by demand for dollar-denominated financial assets, including US government debt.
Stablecoins could extend that system into the digital economy. After President Trump signed the GENIUS Act in July 2025, Treasury Secretary Scott Bessent commented that dollar stablecoins would strengthen the dollar’s position as the world’s reserve currency and increase demand for US Treasuries.
The economic mechanism is relatively simple. Stablecoin issuers receive conventional money from users and hold reserves to support the value and redeemability of their tokens. For dollar-denominated stablecoins, those often include short-term US government securities, creating a direct channel through which global demand for private digital-dollar instruments generates demand for US sovereign debt.
Private issuers and public accountability
Another important difference between traditional and digital dollarisation concerns the issuer. Physical dollars are issued by a public institution, whereas stablecoins are generally issued by private companies.
An interesting example is Tether Limited, the issuer of USDT. Although it is not a bank, its token is used globally to store and transfer value and can, particularly in some emerging economies, perform functions traditionally associated with money. That gives private stablecoin issuers economic relevance far beyond the normal relationship between a company and its customers, raising questions similar to those surrounding commercial banks, which face special capital, supervisory and disclosure requirements because of their monetary functions.
When private companies provide infrastructure of monetary significance across jurisdictions, transparency about reserves, redemption rights and governance becomes a matter of public accountability, not merely corporate communication.
How emerging economies can respond
Recent research by the Bank for International Settlements covering more than 130 economies finds that stablecoin and conventional deposit dollarisation share similar macro-financial drivers and are both persistent. Stablecoin flows, however, appear less responsive to capital controls because they partly circulate outside traditional banking channels, potentially accelerating currency substitution and making it harder to reverse.
That is the real novelty of digital dollarisation: technology has dramatically reduced the cost of choosing another country’s currency, a development that could progressively weaken monetary autonomy in emerging economies. The policy objective should therefore be to prevent dollar stablecoins from becoming a permanent substitute for domestic money.
Authorities should require stablecoin providers serving their markets to meet standards for reserve disclosure, redemption and consumer protection, while local intermediaries should report activity to support monitoring. Since stablecoin arrangements span jurisdictions, regulators also need effective cross-border cooperation and information sharing.
Regulation must be paired with a reliable and affordable domestic payment system, as well as policies that sustain confidence in the local currency. Interoperable payment systems and, where appropriate, central bank digital currencies can facilitate domestic and cross-border transactions in national currencies, reducing reliance on the dollar.
Where risks to monetary sovereignty are acute, governments could also consider restricting private stablecoins in domestic payments. China represents the restrictive end: it prohibits virtual-currency-related financial activity and, in 2026, barred the unauthorised offshore issuance of stablecoins pegged to the renminbi. Its regime is broader than a restriction on dollar stablecoins, but illustrates how policymakers can favour public digital money over private substitutes.
Restrictions alone, however, cannot restore confidence in domestic money. The best defence of monetary sovereignty remains a credible domestic currency and sound institutions. Stablecoins nevertheless increase the speed and scale at which people can respond when credibility weakens, making control over monetary infrastructure a central policy question.