The Role of Stablecoins in Reinforcing Dollar Dominance

Stablecoins are not only potentially reinforcing the U.S. dollar's dominance — they challenge the narrative that BTC will someday end USD's supremacy, argues Citi Wealth strategists.

> "Originally, cryptocurrencies such as bitcoin were conceived as rivals to central bank–issued currencies. Indeed, some believed – and continue to believe – that bitcoin might end the U.S. dollar’s hegemony," the strategists wrote in a new report. "However, stablecoins – which account for more than four-fifths of cryptocurrency trading volume – are challenging that narrative."

Citi points to the fact that the vast majority of stablecoins are pegged to the U.S. dollar while issuers keep both USD and U.S. Treasuries on reserve. They also suggest that if the U.S. government moves to further legitimize stablecoins, that could bolster USD's dominance.

> "Greater regulatory clarity could also potentially further boost stablecoins' appeal. If so, demand for U.S. Treasury bills from stablecoin issuers might grow from around 1% of purchases today," said Citi. "Rather than usurping the dollar, therefore, this variety of cryptocurrency could thus make dollars more accessible to the world and reinforce the U.S. currency’s longstanding global dominance."

Currently, Tether's USDT is by far the world's most popular stablecoin, followed by Circle's USDC. On Tuesday, Ripple announced its RLUSD stablecoin has secured final approval from the New York State Department of Financial Services, paving the way for its launch.

Outpacing Visa

Citi also included data illustrating how widely used stablecoins have become.

> "Activity has reached record highs, with $5.5 trillion in value across the first quarter of 2024. By comparison, Visa saw about $3.9 trillion in volume," the strategists said. "In response to this challenge, Visa, PayPal and other traditional providers are adapting by offering stablecoins of their own or settling transactions in other firms’ coins."

Updated at 2:45 p.m. to clarify Citi Wealth citations.