For decades, the US dollar has been more than a currency. It has functioned as infrastructure.

Access to the dollar system, through global banking networks, correspondent accounts, and the SWIFT messaging system, has long given Washington leverage over trade, capital flows, and sanctions enforcement. Recent geopolitical tensions have only made that reality more visible. 

Now, a quieter shift is underway. As US policymakers continue to distance themselves from the idea of a central bank digital currency, interest is growing around a different tool: USD-backed stablecoins.

High ranking US officials, such as Scott Bessent, have framed regulated stablecoins as a way to strengthen global demand for dollars, particularly in regions where traditional banking access is limited.

This raises a broader question. If stablecoins increasingly function as digital dollars in practice, extending dollar reach while operating on public blockchains, are they becoming a new layer of US monetary infrastructure?

And if so, what does that mean for financial power, privacy, and the future shape of the dollar system?

Dollar Power Long Before Stablecoins

The United States has long exercised influence through the dollar’s central role in global finance. As the world’s dominant reserve currency, the dollar underpins international trade, cross-border lending, and commodity pricing.

International Monetary Fund data shows the dollar still accounted for 58% of global foreign exchange reserves in 2024, giving the US structural leverage over the international monetary system.

Source: IMF COFER

That leverage is reinforced by financial infrastructure. The SWIFT messaging network, while formally neutral and headquartered in Belgium, is deeply embedded in US and allied banking systems. Access to SWIFT and correspondent banking often determines whether institutions can transact internationally at scale. 

This became particularly visible after Russia’s invasion of Ukraine, when several Russian banks were removed from SWIFT as part of coordinated sanctions by the US and its partners, sharply restricting their ability to move funds across borders.

US sanctions policy has consistently relied on this architecture. The Treasury Department’s Office of Foreign Assets Control uses the dollar’s centrality to enforce restrictions by limiting access to dollar clearing and US-linked financial institutions. 

While global dependence on a narrow set of currencies and payment rails concentrates efficiency, it also centralizes power. Viewed through this lens, stablecoins look less like a departure and more like an extension of existing dollar-based influence. But now operating on new rails with even more technical embeddedness rather than new principles.

Why Washington Is Backing Stablecoins Instead of a CBDC

US policymakers have repeatedly signaled reluctance to issue a retail central bank digital currency.

Federal Reserve officials, including Chair Jerome Powell, have long stated that any US CBDC would require explicit authorization from Congress (a prospect widely viewed as unlikely), while also raising concerns around privacy, financial stability, and the role of the banking system. At the same time, Washington’s stance on USD-backed stablecoins has become noticeably more permissive.

Recent academic research for the Federal Reserve has increasingly framed stablecoins as extensions of the existing banking and payment systems rather than a parallel form of sovereign money. Provided they are fully backed, regulated, and integrated into existing compliance frameworks.

Source: @SecScottBessent on X

This framing has been reinforced by market-oriented voices such as Scott Bessent, who has argued that stablecoins can reinforce dollar supremacy by strengthening global demand for dollars. All without expanding the Federal Reserve’s balance sheet or placing the state directly between users and money.

His perspective aligns with a broader policy preference: preserving dollar dominance through private infrastructure rather than public issuance.

In practice, this approach allows the US to encourage digital dollar usage while avoiding the political and legal challenges associated with a formal CBDC. Brent Johnson, speaking on the Macro Voices podcast called the genius of this move Machiavellian, claiming that stablecoins come under the guise of freedom and efficiency, but ‘quietly reinforces the USD as the global reserve currency and the US govt control over the global monetary system.’

Synthetic Dollars and the Changing Shape of Liquidity

USD-backed stablecoins such as $USDT and $USDC increasingly function as offshore dollars. For users outside the United States, particularly in emerging markets, they offer direct exposure to the dollar without relying on local banks, correspondent relationships, or physical cash.

Data from Chainalysis shows how stablecoin usage is disproportionately high in regions facing currency volatility, capital controls, or weak payment infrastructure. Namely, Latin America, Sub-Saharan Africa, Eastern Asia, and Eastern Europe, where dollar liquidity has long been constrained.

Source: Chainalysis

This growth coincides with a broader shift in how dollar liquidity is managed domestically. In 2020, the Federal Reserve reduced reserve requirements for US banks to zero, ending the long-standing practice of requiring institutions to hold a fixed percentage of deposits as reserves.  

Since then, liquidity management has relied more heavily on discretionary tools, including interest on reserve balances, the discount window, standing repo facilities, and, during periods of stress, emergency backstops such as the Bank Term Funding Program.

Rather than hard constraints, the system now operates through centralized support mechanisms and supervisory oversight.

And the kicker is that stablecoins fit naturally within this evolving framework. While they sit outside the traditional banking perimeter, their issuers are tightly linked to US dollar markets through reserve assets, compliance obligations, and regulated on- and off-ramps.

From a system perspective, they represent another layer of dollar liquidity provision, one that is flexible, globally accessible, and increasingly shaped by regulatory design rather than balance-sheet rules.

Stablecoins do not replace the dollar system. They extend it, shifting where and how dollar liquidity circulates, while leaving ultimate control anchored in US financial institutions and policy frameworks.

A Digital Dollar Without the Name

In policy discussions, a clear distinction is often drawn between USD-backed stablecoins and a central bank digital currency. A CBDC would represent a direct liability of the Federal Reserve, issued and settled by the state.

Stablecoins, by contrast, are private instruments backed by reserves and issued by regulated entities operating within the existing financial system.

Functionally, however, the differences can appear narrower in practice. Both forms represent digital claims on the dollar, enable near-instant settlement, and can be integrated into programmable payment systems. Many claim stablecoins are the same as CBDCs, just with a few extra steps.

Source: @naval on X

Both also raise similar questions around compliance, transaction visibility, and the role of intermediaries. From a user perspective, the experience of holding and transferring a regulated stablecoin can resemble that of using a digital dollar, even if the legal structure differs.

The distinction matters politically. A US CBDC would require congressional approval and carries concerns around state involvement in retail payments and data access. Stablecoins avoid many of those obstacles by placing private issuers between users and the central bank. 

Technically, however, the outcome is similar: dollar-denominated value circulating digitally on modern payment rails. In that sense, stablecoins may deliver many of the functions of a digital dollar without the name (or the political cost) attached.

Control, Visibility, and the Trade-Offs

As stablecoins scale, questions of control and visibility move from theoretical to practical. Unlike cash, stablecoin transactions are recorded on public blockchains. They create permanent, auditable trails. 

While wallet addresses are pseudonymous, activity can often be linked to real-world identities through exchanges, payment providers, and other regulated on-ramps. This transparency is frequently cited by policymakers as a feature, not a flaw.

Control mechanisms are also built into the system. Major issuers such as $USDT and $USDC retain the ability to freeze or blacklist addresses in response to sanctions, court orders, or compliance requirements. 

In addition, stablecoin usage at scale depends heavily on KYC-compliant intermediaries. This creates chokepoints where regulatory oversight can be applied even if transactions occur on open networks.

It’s clear why the crypto community remains divided. Some view regulated stablecoins as a bridge between digital assets and the mainstream financial system. They celebrate the idea of improved liquidity, settlement speed, and institutional participation. 

Others see them as introducing financial surveillance and discretionary control into what were once permissionless networks.

Looking ahead, the trajectory is not predetermined. Stablecoins could evolve into a neutral payment infrastructure that broadens access to dollar liquidity. They could also become increasingly policy-shaped instruments, reflecting the priorities of regulators and issuers.

The outcome will be shaped not by the technology itself, but by the rules, incentives, and oversight that surround it.