An Arsenal from Algorithms: Stablecoins & U.S. Monetary Power
The U.S. dollar's future as the world's dominant currency hangs in the balance. As China advances its digital renminbi and Bitcoin maxis cheer on a post-national currency, many see the dollar's global dominance as increasingly vulnerable.
Investors and policymakers focused on America's long-term economic interests should see the opportunity: dollar-backed stablecoins offer the United States a powerful tool to expand its leadership in the 21st-century monetary competition.
Far from threatening U.S. financial power, these private digital dollars act as a "soft-power Trojan horse," quietly injecting American monetary influence into the heart of decentralized finance and digital commerce.
As NFX investor Morgan Beller observes, "stablecoins are defense tech."
By bridging traditional dollar strength with blockchain innovation, they offer not just financial innovation, but a strategic asset for preserving American economic sovereignty.
The dollar’s legacy advantages are weakening
The U.S. dollar historically dominated through a cascade of advantages—post WWII strength, deep capital markets, petrodollar arrangements, and broad acceptance as a reserve currency.
Even in the face of occasional inflationary bouts, rising deficits, and geopolitical tussles, it has remained the linchpin of world trade and investment. Now, fissures have appeared in this foundation. Prolonged deficits, spiraling debt, and changing perceptions of the U.S. political climate have eroded faith in the dollar's long-term stability, spurring some nations to explore alternatives.
Meanwhile, adversaries and would-be rivals, including China, envision parallel financial architectures that could chip away our monetary sway.
And new technologies make this reordering more feasible.
Central bank digital currencies, such as China's digital renminbi, seek to reduce reliance on Western payment systems. On the private side, Bitcoin and other decentralized cryptocurrencies have flipped conventional assumptions about who issues money (and how).
In this uncertain environment, stablecoins pegged to the dollar occupy a nuanced middle ground: they rely on the dollar's foundation while also embracing novel, programmable blockchains.
Their very existence, if thoughtfully incorporated into official policy, may end up rejuvenating America's global financial supremacy rather than undermining it.
Building on stablecoins as a pillar of U.S. economic leadership
Reinforcing Dollar Dominance & Extending Global Reach
Dollar-backed stablecoins bring digital advantages to the traditional monetary system, enabling instant borderless transactions settled on public blockchains. This arrangement extends the dollar's reach to corners of the world beyond the scope of standard banking.
People in countries with unstable currencies, patchy payment rails, or strict capital controls can hold and transact in tokenized USD, fostering "crypto-dollarization."
Paradoxically, what might have begun as a threat to fiat currency has become a prime tool for bolstering the dollar's authority. This phenomenon echoes the dollar's evolution into a global reserve currency in the 20th century, but at internet-age velocity.
A new monetary tag-team?
Bitcoin foundation, stablecoin reach
The most promising path forward may be a two-layer monetary architecture that strategically positions the dollar at the intersection of traditional and decentralized finance. In this model, perhaps Bitcoin's network serves as a neutral, apolitical settlement layer—much like how the internet provides neutral infrastructure for information exchange.
Meanwhile, USD stablecoins could function as a primary medium of exchange, similar to how the dollar dominates international trade despite the existence of multiple global communications protocols.
This arrangement offers several strategic advantages:
First, it allows the U.S. to embrace Bitcoin's censorship-resistant properties without ceding monetary control—American firms and citizens can benefit from blockchain's efficiency while still conducting business in dollar terms.
Second, it creates a powerful network effect: as Bitcoin's infrastructure expands, it automatically carries dollar-denominated stablecoins with it, turning potential competition into a force multiplier for U.S. influence.
Third, it provides an elegant solution to the "digital dollar" dilemma: rather than rushing to create a central bank digital currency (CBDC), the U.S. can allow private stablecoins to serve as its digital vanguard, maintaining competitive innovation while preserving regulatory oversight.
The model is already proving out in emerging markets. Venezuela, Lebanon, and Nigeria offer compelling examples: even as their governments resist dollarization, citizens are adopting USD stablecoins for savings and commerce—creating grassroots dollar adoption that requires no direct U.S. intervention.
Stablecoins drive up demand for U.S. treasuries
Stablecoin issuers typically hold U.S. Treasuries or cash equivalents as reserves to back their tokens. As usage and adoption rise, the cumulative demand for these reserves increases as well, translating to additional, stable investment in U.S. government debt.
Anthony Pompliano writes that stablecoin issuers are already top-20 holders of U.S. treasuries.
While some fear that massive issuance might undercut traditional banks, it can simultaneously reinforce the liquidity and depth of American capital markets. This relationship may prove valuable during times of uncertainty, attracting global investors to the safety of Treasury-based stablecoin collateral.
From an inclusion standpoint, stablecoins bring speed, cost savings, and reach unattainable through conventional banking. Cross-border payments, often burdened by high fees and processing delays, become near-instant with stablecoins.
For U.S. policymakers concerned about intensifying competition for global currency dominance, every new stablecoin user effectively adds another link to the dollar's far-reaching chain.
So, why wouldn't we want more stablecoins?
Monetary Policy and Systemic Risk
One central critique is that stablecoin adoption might hamper the Federal Reserve's ability to guide inflation and interest rates. If large sums of dollars migrate to blockchain-based tokens outside commercial banks, the Fed's traditional policy levers might weaken.
Moreover, if stablecoin issuers suffer runs—caused, for instance, by panic or questionable reserve management—a broader crisis of confidence could unfold, especially if hundreds of billions of tokenized dollars suddenly flood back into traditional markets.
The TerraUSD collapse in 2022 illustrated how quickly faith in a poorly designed stablecoin can unravel.
Yet many stablecoin proposals call for 100% (or overcollateralized) backing by safe, liquid assets. Mandating frequent or real-time audits could further curb run risk. While this idea needs healthy debate, regulators could also stipulate that stablecoin reserves respond directly to monetary policy signals—for instance, by requiring certain proportions of short-term Treasuries or Fed-backed deposits, thus tying token liquidity more directly to the central bank's operations.
Disruption of the Banking Sector
Stablecoins' appeal—speed, low cost, global accessibility—could siphon off bank deposits, stoking fears that traditional lenders might lose resources for loans to individuals and SMBs. This scenario might starve local economies of credit, shifting power toward large, tech-savvy issuers or new financial intermediaries.
Banks need modernize anyway, and incorporate stablecoin services (or offer co-branded digital dollar wallets) to retain a strong deposit base and adapt to shifting consumer preferences rather than ceding ground. Thoughtful legislation could coordinate stablecoins with banks instead of letting them languish in decline.
Geopolitical Risks, Sanctions, and Oversight
Governments often leverage the dollar's ubiquity to enforce sanctions. Critics worry that offshore stablecoin issuers, or decentralized platforms, might enable sanctioned countries to skirt restrictions.
Yet, when connected to reputable issuers, stablecoins can be monitored in ways that purely decentralized cryptocurrencies cannot.
While I don't love the premise, stablecoins pegged to the U.S. dollar effectively remain under significant jurisdictional influence, preserving sanction enforcement—especially if the stablecoin issuer is regulated in the U.S. or allied nations.
The Threat of "Illegitimate Digital Dollars"
Counterfeit or fraudulently backed stablecoins erode trust in genuine dollar tokens, sow confusion among consumers, and tarnish dollar’s brand.
If unscrupulous issuers hold subpar assets or misrepresent reserves, they open the door for broader crises of confidence in digital dollars.
Clear definitions of what constitutes a regulated "digital dollar," combined with uniform reserve requirements and monthly attestations, would help root out scams or expose undercollateralized stablecoins.
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International Resistance to Digital Dollar Dominance
The widespread adoption of dollar-backed stablecoins could trigger coordinated resistance from nations viewing them as instruments of American financial imperialism. Countries like Russia, China, and Iran might not only ban these tokens but could also forge alliances to develop competing digital currency frameworks. The European Union, while generally aligned with U.S. interests, might resist the entrenchment of dollar-based stablecoins to protect the euro's international role.
This pushback could manifest through regulatory barriers, alternative payment systems, or even sanctions against stablecoin issuers, potentially fragmenting the global digital currency landscape.
Domestic Political Concerns Over 'Private Money Creation'
The prospect of private companies issuing dollar-denominated stablecoins raises thorny questions about monetary sovereignty and democratic accountability. Critics argue that delegating such significant monetary power to private entities—especially large tech companies or financial conglomerates—could create a "shadow central banking" system outside proper public oversight.
Progressive politicians might view stablecoins as another example of financial sector overreach, while conservatives could resist what they see as unholy marriage of Big Tech and Big Finance. This domestic political resistance could complicate efforts to establish a coherent regulatory framework.
Can the U.S. actually (re)engineer dominance with the digital dollar?
Often deservedly, regulation lands as a four-letter word.
But the challenge of regulating stablecoins actually presents America with a rare opportunity to win, and architect the future of global finance.
While other nations weigh restrictions or ban digital assets entirely, let's deliver a sneak-attack—a regulatory framework to unleash stablecoins as an instrument of monetary sovereignty.
This isn't merely about consumer protection or financial stability—it's about engineering the next generation of dollar dominance.
At the heart of this framework lies a sophisticated approach to reserve management. Rather than simply requiring stablecoin issuers to maintain dollar-equivalent backing, American regulators can create a system that automatically strengthens U.S. financial markets.
By mandating that large-scale issuers hold significant portions of their reserves in U.S. Treasuries, every new stablecoin minted would naturally increase demand for government securities. This approach creates a virtuous cycle: as stablecoins gain global adoption, they simultaneously deepen the Treasury market's liquidity and reinforce the dollar's role as the world's reserve currency.
The framework's genius lies in its tiered structure: Smaller issuers could operate under lighter requirements, fostering innovation and competition, while larger players would face progressively stricter standards that align their growth with national strategic interests. This graduated approach ensures that scale itself becomes a mechanism for strengthening American financial power—the larger a stablecoin issuer grows, the more it must invest in U.S. government securities and integrate with federal oversight systems.
Beyond reserves, the regulatory architecture must address the dual imperatives of surveillance and innovation.
Here, America can learn from but improve upon China's approach to digital currency control. Instead of creating a government-controlled digital currency, U.S. regulators can establish selective transparency requirements that preserve privacy for legitimate commerce while enabling oversight of suspicious activities.
The framework should also weaponize interoperability to America's advantage. By requiring U.S.-regulated stablecoins to maintain certain technical standards, regulators can ensure these digital dollars work seamlessly across both traditional and decentralized finance. This technical standardization, far from being merely administrative, serves a deeper strategic purpose: it makes U.S.-regulated stablecoins the easiest choice for global businesses and developers, naturally expanding American influence through market forces rather than mandate.
Programmable money...FTW!
Crucially, any regulatory structure must include mechanisms for crisis resilience. But therein lies the beauty of programmable money. Smart contract-based circuit breakers, automated stabilization protocols, and dynamic reserve requirements can protect both stablecoin holders and broader markets during periods of stress. These safeguards would demonstrate that dollar-based stablecoins aren't just the most widely used digital currencies—they're also the most secure.
The international dimension of this framework is perhaps its most subtle yet potent feature.
By creating clear rules for stablecoin issuance and operation, the U.S. can establish a model that other nations will be incentivized to follow. Countries seeking to participate in the growing digital dollar economy will naturally align their regulations with American standards, creating a new kind of monetary network effect. This "regulatory diplomacy" extends U.S. financial influence without requiring explicit agreements or treaties.
The result is a regulatory architecture that doesn't just govern stablecoins—it transforms them into instruments of American power. By aligning private sector innovation with national strategic interests, this framework ensures that the future of digital currency will strengthen rather than undermine dollar hegemony. It's a vision of regulation not as restriction, but as a tool for extending American financial power into the digital age.
Someone will write the next chapter in the dollar’s story…why not U.S.?
The coming decade will determine whether the dollar maintains its position as the world's premier currency.
Stablecoins represent far more than a technological innovation—they are a strategic asset that can channel global monetary power increasingly in America's favor. But this opportunity demands more than passive acceptance or cautious regulation. It requires a bold vision that recognizes stablecoins as firepower.
Consider the parallel with the post-WWII era, when the U.S. deliberately constructed a financial architecture that embedded dollar dominance through the Bretton Woods system. Today's challenge is similar, but the tools are different.
Instead of international institutions and gold reserves, we have blockchain networks and tokenized assets.
Instead of formal agreements between nations, we have organic adoption by individuals and businesses worldwide.
And still, the potential impact is even greater. A well executed stablecoin strategy could:
The risks of inaction are equally clear. China's digital currency experiments, Russia's alternative payment systems, and various cryptocurrency projects all seek to carve out spaces beyond dollar influence.
But stablecoins offer America a unique chance to co-opt the very technologies that might otherwise threaten dollar dominance.
The choice facing U.S. policymakers, investors, (and patriots) isn't whether to embrace stablecoins—that adoption is already happening globally. The real choice is whether America will actively shape this technology to enhance its position or passively watch as lead the future of money.
Grateful for these references, inspiration (even when we don't agree!) -
The stablecoin evangelist, Zach Fowler
The Pomp Letter: Stablecoins are a National Security Priority Now
Citi Wealth 2025 Wealth Outlook (produced by Gera Aina and Nicole D. )
House Financial Services Committee: Hill and Steil Release Discussion Draft for Stablecoins
Katherine Boyle (and her pov) on American Dynanism
Everything a16z crypto writes and US as a the Crypto Capital
New Founding and its investment vision for a better America
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3 周h/t: https://www.nfx.com/post/stablecoins-defense