The ‘Big Bang’ of US stablecoins

Written by D. Parsons, USDP, US Stablecoin provider backed by UK property

In the rapidly evolving landscape of global finance, US stablecoins have emerged as a transformative force, challenging the dominance of traditional bank-issued currencies. These digital assets, pegged to the US dollar, are reshaping how value is stored, transferred and perceived worldwide. As local currencies face increasing pressure, stablecoins are poised to redefine monetary systems, rendering traditional banking and central bank policies obsolete in some contexts.

Source: USDP

Stablecoins are blockchain-powered digital assets designed to maintain a stable value by being pegged to a reserve asset, typically the US dollar. Unlike volatile cryptocurrencies like Bitcoin, US stablecoins such as Tether (USDT) or USD Coin (USDC) offer predictability, making them ideal for transactions, savings and as a medium of exchange. In the US, a growing number of banks are compelled to issue their own digital liabilities to compete in this space as stablecoins gain traction for their reliability and accessibility. This shift signals a broader trend: the financial system is moving toward decentralised, blockchain-based solutions that bypass traditional intermediaries.

The influence of the US dollar extends far beyond its borders, and stablecoins amplify this reach. Historically, the dollar dominated global trade, particularly in energy markets, earning the moniker “petrol dollar”. Today, more assets ranging from real estate to consumer goods are being denominated in US$ at the local level, even in regions with their own currencies. After hyperinflation decimated the Zimbabwean dollar, the country adopted the US$ as a de facto currency. Stablecoins now offer a digital alternative, allowing citizens to transact without relying on physical cash or unstable local systems. In some Eurozone countries, businesses and individuals use US stablecoins to hedge against euro volatility, especially during economic uncertainty. In the UK, the pound sterling, whilst strong, faces competition from stablecoins for cross-border transactions since they offer lower fees and faster settlement. Despite strict regulations, Chinese traders use stablecoins to bypass capital controls, denominating transactions in US$ to access global markets. And, in nations like Venezuela and Argentina, where local currencies suffer from inflation, US stablecoins provide a stable alternative for savings and trade. This global trend underscores the US dollar’s enduring dominance, now amplified by the accessibility and efficiency of stablecoins. Moreover, US stablecoins offer distinct advantages over traditional local currencies, driving their adoption worldwide. These features make US stablecoins a compelling alternative, particularly in regions where local currencies are plagued by instability or inefficiencies:

· no banks needed - stablecoins operate on decentralised blockchain networks, eliminating the need for bank intermediaries. This reduces costs and increases access for the unbanked, who may lack access to traditional financial systems.

· instant transfers - transactions with stablecoins settle in minutes, if not seconds, compared to days for traditional bank transfers. This speed is critical for global trade and remittances.

· portability and utility - stablecoins are easily stored on digital wallets and can be used for a wide range of transactions, from online purchases to peer-to-peer payments, making them more versatile than cash or local digital currencies.

Meanwhile, the rise of US stablecoins has profound implications for local monetary systems, threatening the sovereignty of central banks and the efficacy of fiscal policies. On monetary policy, adoption of stablecoins could lead to a loss of control over interest rates. Central banks rely on interest rate adjustments to manage inflation and economic growth. As stablecoins gain prominence, individuals and businesses may bypass local currencies, reducing the effectiveness of these tools. For example, if a significant portion of transactions in a country occurs in USDC, the central bank’s ability to influence money supply diminishes. With stablecoins facilitating direct, decentralised transactions, the role of central banks as intermediaries and regulators weakens. In extreme cases, central banks may become irrelevant if local currencies lose favour. Afterall, governments rely on local currencies to implement fiscal policies, such as taxation and public spending. As stablecoins dominate, collecting taxes in local currency becomes challenging, and governments may struggle to fund services or manage deficits. Local currencies are increasingly at risk of being overshadowed by US stablecoins. In countries with high inflation or weak financial infrastructure, stablecoins offer a reliable alternative that citizens and businesses readily adopt. Even in stable economies, the convenience and efficiency of stablecoins make them attractive for cross-border trade and digital transactions. Over time, this shift could erode the relevance of local currencies, forcing governments to either adopt stablecoins officially or develop competing digital currencies.

In addition, the rise of US stablecoins marks a seismic shift in the global financial system, challenging the dominance of bank-issued currencies and central bank authority. With their stability, speed and accessibility, stablecoins are not just a technological innovation but a catalyst for redefining monetary policy and economic sovereignty. As more regions embrace USD-denominated digital assets, local currencies face an existential threat, and the world inches closer to a future where decentralised, dollar-backed stablecoins reign supreme. The big bang of US stablecoins has begun, and its shockwaves will reshape finance for years to come. Stablecoins offer the ability to pay payments 24/7 using your mobile phone without needing permission or a bank - a powerful proposition. The prize (is huge, as Sarah Breeden, Deputy Governor for Financial Stability at the Bank of England reminded us according to EY: “The total value of cross-border payments could reach nearly $290 trillion by 2030, up over 50% on last year.” Stablecoins only need to attract a small % to have a big impact on the global economy and an erosion of monetary sovereignty in a number of jurisdictions. If more transactions happen in stablecoins, central banks lose the ability to steer economies through interest rates or control the money supply. Tax collection falters, capital controls erode and the policymaking toolkit begins to rust. The threat is especially potent in fragile economies, but it doesn't stop there: even developed countries feel the gravitational pull of a programmable, portable digital US$. This isn’t about whether stablecoins are legal or not, it’s about whether local currencies remain relevant at all. Governments are now faced with a stark binary: either embrace the stablecoin ecosystem and regulate it into a public utility, or risk monetary disintermediation as citizens opt out. The “Big Bang” of stablecoins may seem quiet today but, in hindsight, it may prove to be the most transformative monetary shift since Bretton Woods. The new question isn’t who controls interest rates, but who controls the code that moves value.