Dollar Hegemony ④ — Stablecoins and Dollar Empire 2.0

In 2020, the total stablecoin market cap was approximately $25 billion. By end-2024, it exceeded $180 billion — a 7× expansion in four years.

97%+ of this market is dollar-pegged. The growth of stablecoins means an explosive rise in the number of people globally paying, saving, and investing in dollars — without bank accounts, across borders, 24 hours a day in real time.

The traditional channels of dollar hegemony were trade invoicing, Treasuries, and SWIFT. Stablecoins are emerging as a fourth channel. And critically: this was not created by the US government — the private sector built it, and now the US government is pulling it inside the regulatory framework.

Tether Limited is a private company registered in the British Virgin Islands. The USDT it issues promises a 1:1 dollar exchange guarantee. To keep this promise, Tether must hold reserve assets matching USDT in circulation.

The composition of those reserves is the key. As of 2025, over 80% of Tether's reserves are US Treasury Bills — approximately $120 billion in total.

What does this mean? Tether has become an entity that holds more US Treasuries than Norway, India, or Germany — among the world's top 15 US Treasury holders.

Tether's existence takes the irony of dollar hegemony to the extreme. Tether's heaviest users are people in emerging markets who struggle to access dollar bank accounts — Venezuelans, Argentinians, Nigerians, Russians. Unable to access dollar assets directly, they use USDT. The result: through Tether, structural demand for US Treasuries grows. People trying to escape the dollar system are reinforcing it.

In March 2025, the US Senate passed the GENIUS Act (Guiding and Establishing National Innovation for US Stablecoins Act) — the first federal regulatory framework ever applied to dollar stablecoins.

Key provisions:

① Issuer requirements: Dollar stablecoin issuers must be federally or state-chartered institutions — banks, payment companies, or Federal Reserve-licensed entities.

② Reserve requirements: 100% of issued stablecoins backed by dollars or short-term US Treasuries. No other assets permitted.

③ Dollar peg mandatory: Dollar stablecoins must maintain a strict 1:1 dollar peg.

What this means for dollar hegemony: The GENIUS Act converts stablecoins from 'unregulated risky assets' to 'digital dollar infrastructure under US regulation.' Simultaneously, it structurally secures short-term US Treasury demand — every dollar stablecoin issued triggers a dollar of Treasury purchases.

The Trump administration brands this as 'American financial innovation' — but the substance is private-sector delegation of dollar hegemony and structural anchoring of Treasury demand.

China's e-CNY (digital yuan) is the world's largest central bank digital currency (CBDC) project. Pilot testing began in 2020, and cumulative transactions reached approximately ¥7 trillion (~$1 trillion) by 2024.

But context matters. Most transactions are domestic Chinese payments — Beijing subway, convenience stores, DiDi rides. This is a domestic payment app competing with Alipay and WeChat Pay.

International use of e-CNY remains extremely limited, for three reasons:

① Closed capital account — yuan CBDC is not free from capital controls
② Trust deficit — foreign businesses and individuals have weak incentives to hold e-CNY voluntarily
③ Resistance to Chinese government's complete transaction traceability — e-CNY has no anonymity

Conclusion: e-CNY is not a serious competitor to dollar stablecoins. It is a project to modernize domestic digital payment infrastructure in China, with challenging dollar hegemony as a secondary objective.

Concluding a four-part series on dollar hegemony, a single proposition summarizes everything:

Dollar hegemony is not declining — it is being redesigned.

As Part 1 showed, dollar hegemony was created through three decisive designs: Bretton Woods, the Nixon Shock, the petrodollar. Not a natural market outcome — an intentional structure.

As Part 2 showed, dollar hegemony operates through the plumbing of the repo market. The faucet controlling that plumbing is the Fed balance sheet. Under Kevin Warsh, that faucet will tighten further.

As Part 3 showed, dedollarization declarations overflow but infrastructure reality is sobering. The yuan is blocked by the decisive barrier of a closed capital account; the BRICS common currency is collapsing under sovereignty conflicts.

And what Part 4 reveals: the dollar is being redesigned in its most innovative form yet. Through the private-sector channel of stablecoins, the dollar is evolving into a digital dollar — accessible without bank accounts, across borders, 24 hours a day. The GENIUS Act formalizes 'Dollar Empire 2.0' by pulling this under US regulation.

The investment implication is clear: positioning on a 'weakening dollar' narrative requires caution. The plumbing is tightening, and new channels are distributing dollars across the globe faster than ever. Betting on dedollarization is betting on declarations over infrastructure reality.