Cryptocurrency and the Dollar: Competitors or a New Financial Alliance?

Take a saver in a country where the local currency is losing value month over month. A decade ago, protecting those savings in dollars meant a foreign bank account, a money changer, or a stack of physical cash. Today it can mean opening a phone app and holding a dollar-pegged token instead. This shift - repeated across millions of such transactions worldwide - is quietly reshaping the relationship between crypto and the dollar.

Bitcoin's original idea was to create money independent of a centralized financial system. Today, it remains an important investment asset, but its high price volatility makes it difficult to compete with stable monetary units in everyday payments.

It's precisely in this space that stablecoins have become increasingly important. A stablecoin is a digital token whose value is linked to a specific asset - most commonly one U.S. dollar. Users can transfer such tokens on blockchain networks at any time of day and across borders. However, the actual cost and speed depend on the network, the digital wallet, and which platform someone uses to move between traditional money and stablecoins.[3]

How Stablecoins Could Strengthen the Dollar's Influence

The significance of stablecoins becomes particularly clear in countries with high inflation, sharp currency depreciation, or limited access to U.S. dollars. Under such conditions, a dollar-pegged token allows individuals to hold part of their savings in dollars or move money abroad more easily. The IMF links this process to a digital form of traditional dollarization and notes that stablecoins may significantly reduce barriers to accessing foreign currencies.[4]

For the United States, this could have two potential effects. First, demand for the dollar may increase among individuals and businesses that do not directly participate in the U.S. banking system. Second, stablecoin growth drives demand for U.S. government securities.

Congress passed the GENIUS Act in July 2025, establishing the first federal regulatory framework for payment stablecoins in the United States. Once fully in effect - which will happen no later than January 2027 - the law will require issued stablecoins to be backed at least one-to-one by specified highly liquid reserve assets, including U.S. dollars, certain bank deposits, short-term Treasury securities, and reverse repos backed by Treasuries.[5] Notably, the framework does not yet bind Tether, the largest stablecoin issuer by far: the company operates from El Salvador and has years to bring its flagship token into compliance, having launched a separate, U.S.-based token in the meantime.

Still, the law points to an important emerging connection between the crypto economy and U.S. government debt. A consumer buys a dollar-pegged stablecoin; the issuer holds reserves to back that obligation; and it invests part of those reserves in Treasury bills. According to BIS data, stablecoin issuers purchased nearly $35 billion in U.S. Treasury securities in 2025, while their total reserves exceeded $270 billion by year-end.[6]

The scale remains small relative to the overall U.S. financial market, but the direction is already significant. In November 2025, Federal Reserve Governor Stephen Miran noted that growing international demand for stablecoins, all else being equal, increases demand for liquid U.S. assets and could thereby place downward pressure on the U.S. government's financing costs. He also suggested that, if widely adopted, stablecoins could have important implications for monetary policy.[7]

In this sense, a technology originally viewed as an alternative to traditional finance is becoming part of the U.S. financial system itself - even as its formal integration into that system, under the GENIUS Act, is still a work in progress.

But This Is Not Only a Story About a Stronger Dollar

The rapid growth of stablecoins also brings significant risks.

One concern involves the banking system. If consumers move large amounts of money from traditional deposits into stablecoins, banks' funding structure could change. For this reason, the GENIUS Act will prohibit payment stablecoin issuers from paying consumers interest or yield simply for holding the token once it takes effect. However, purchasing a stablecoin does not automatically mean the corresponding funds disappear entirely from the banking system - the effect depends on where and how the issuer holds its reserves.[8]

A second concern is so-called run risk. If many stablecoin holders simultaneously demand redemption of their tokens for dollars, issuers may need to liquidate reserves quickly. As stablecoins grow in scale and become more interconnected with traditional financial markets, the potential impact of such a scenario on financial stability becomes increasingly important - it is precisely this vulnerability the Financial Stability Board has flagged in its recommendations for regulating global stablecoin arrangements.[9]

The Biggest Change May Be Happening Outside the United States

Perhaps the most interesting aspect of stablecoins' global impact is emerging in developing countries and economies with unstable currencies. According to a 2026 BIS study, more than 70% of transactions converting fiat currency into stablecoins originate from non-dollar currencies.[10] This means that a significant share of stablecoin demand comes not from people who already hold dollars, but from people converting from other currencies.

For individual users, this can offer practical advantages: easier access to dollars, a hedge against inflation, or another channel for international money transfers. For a country's central bank, however, the picture is more complicated. If citizens increasingly use dollar-pegged tokens instead of local currency for savings and everyday transactions, domestic monetary policy may lose effectiveness. The IMF notes that stablecoins could accelerate traditional dollarization, particularly in countries with high inflation, weak institutions, and unstable exchange rates.[4]

Traditional dollarization often required physical U.S. dollars, dollar-denominated bank accounts, or foreign accounts. Stablecoins significantly reduce some of these barriers - users need only an internet connection and the appropriate digital infrastructure. As a result, the issue is no longer purely technological - it concerns a country's ability to manage its own money supply, interest rates, and capital flows.

Where the Dollar Stands Today

Stablecoins are growing at a time when the U.S. dollar continues to hold a dominant position in the international financial system. According to IMF data, the dollar accounted for 57.13% of the world's official foreign exchange reserves in the first quarter of 2026, up from 56.42% in the previous quarter - though the IMF attributes roughly half of that increase to the dollar's own appreciation against other currencies rather than to central banks actively adding dollar holdings.[11]

At approximately $320 billion, the stablecoin market remains small compared with the traditional financial system: U.S. commercial bank deposits alone total roughly $19 trillion.[2] For that reason, the relationship between the dollar and stablecoins today looks more like a change in form than the replacement of one type of money by another. The dollar itself hasn't changed, but one way to hold and move it is now by putting it on blockchain networks - notable given that a January 2025 executive order bars U.S. federal agencies from developing a central bank digital currency. At this stage, the digital distribution of the dollar is taking place primarily through privately issued stablecoins instead.

A New Financial Alliance?

Bitcoin continues to serve as an independent, alternative investment asset. Stablecoins are different. Approximately 98% of today's stablecoin market is pegged to the dollar; major issuers hold U.S. government securities as part of their reserves; and a significant portion of stablecoin use is connected to accessing dollars outside the United States.[1][6][10]

Against this backdrop, the question of whether cryptocurrency will replace the dollar is becoming less useful as a lens for understanding what is actually happening. A more important question is this: could crypto infrastructure itself become a new channel for expanding the dollar's global influence?

Current data suggest that such a trend clearly exists, even as its ultimate scale remains uncertain - stablecoins still account for only a very small share of global payments.[3] What happens next will hinge on three things: how deeply stablecoins penetrate everyday commerce beyond crypto trading, how the GENIUS Act's rules actually function once fully in force in 2027 - and whether its largest issuer, Tether, comes into compliance by then - and how central banks outside the U.S. respond as their own citizens quietly convert savings into dollar tokens. For now, the saver reaching for a stablecoin instead of a local bank account is not abandoning the dollar system - without quite realizing it, they are extending it.

References & Sources

[1] Iñaki Aldasoro, Jon Frost, and Hiro Ito, The Impact of Stablecoins on the International Monetary and Financial System, BIS Papers No. 170, Bank for International Settlements, May 5, 2026.

[2] Bank for International Settlements, Annual Economic Report 2026, Chapter III, "Anchoring Trust in Money: Innovation Beyond Stablecoins," 2026; Board of Governors of the Federal Reserve System, Deposits, All Commercial Banks (H.8 release), March 2026.

[3] Pablo Hernández de Cos, "Stablecoins: Framing the Debate," speech at a Bank of Japan seminar, Bank for International Settlements, April 20, 2026.

[4] Tobias Adrian, "Tokenized Finance," IMF Note 2026/001, International Monetary Fund, April 1, 2026; Tobias Adrian, "Tokenized Finance and Money," remarks at the Third Conference on Stablecoins and Tokenization, Federal Reserve Bank of New York, May 22, 2026; Dan Katz, "Stablecoins: Promise, Risks, and Policy Choices for Emerging Markets," International Monetary Fund, August 7, 2026.

[5] Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act), Pub. L. No. 119-27, signed into law July 18, 2025, effective no later than January 18, 2027 per Section 20.

[6] Rashad Ahmed and Iñaki Aldasoro, Stablecoins and Safe Asset Prices, BIS Working Papers No. 1270, Bank for International Settlements, May 2025 (revised February 2026).

[7] Stephen I. Miran, "A Global Stablecoin Glut: Implications for Monetary Policy," Board of Governors of the Federal Reserve System, November 7, 2025.

[8] White House Council of Economic Advisers, "Effects of Stablecoin Yield Prohibition on Bank Lending," April 8, 2026.

[9] Financial Stability Board, Regulation, Supervision and Oversight of "Global Stablecoin" Arrangements: Revised High-Level Recommendations, July 2023.

[10] Iñaki Aldasoro, Paula Beltrán, and Federico Grinberg, Stablecoin Flows and Spillovers to FX Markets, BIS Working Papers No. 1340, Bank for International Settlements, March 27, 2026.

[11] International Monetary Fund, Currency Composition of Official Foreign Exchange Reserves (COFER), First Quarter 2026 Data Brief, released July 1, 2026.