The global stablecoin market is emerging as a new arena for great-power currency competition. According to Bloomberg, the U.S. government is betting that the market for private dollar stablecoins, dominated by Tether, will balloon to around $3 trillion in the coming years—more than ten times its current size of roughly $200 billion. This strategy aims to reinforce the dollar’s international dominance and channel global savings into U.S. Treasury debt.
However, the report warns that the market is heavily concentrated in Tether, a company whose compliance and anti-money laundering practices have been questioned. Tether’s reserves are largely held in short-term U.S. Treasuries. A run on Tether triggered by a smart contract failure or loss of confidence could force a massive fire sale of those bonds, unleashing turmoil akin to a money-market fund crisis, disrupting the U.S. debt market and global payment and settlement systems.
To prevent critical financial infrastructure from becoming locked into U.S. private dollar tokens, the European Central Bank is accelerating its central bank digital currency (CBDC) and “tokenized euro” project. Its atomic settlement mechanism enables real-time delivery-versus-payment on distributed ledgers, eliminating credit and settlement risk, and ensuring Europe retains strategic autonomy in its payment and settlement systems.