The Digital Dollar Standard

How stablecoins are rewriting the architecture of global finance

Executive Summary

Dollar-pegged stablecoins, digital tokens whose value is fixed one-to-one with the US dollar and settled on blockchain infrastructure, are the first instruments to offer a credible bypass of that system at scale. A transfer that costs $15 in fees through a traditional remittance operator costs a fraction of a cent on Solana. Settlement that takes three to five business days through the correspondent chain takes 400 milliseconds on the same network. 

This paper frames that transformation as progressive disintermediation: the selective erosion of intermediary functions where costs demonstrably exceed the value those intermediaries deliver. Stablecoins do not displace all intermediaries in all contexts; compliance, legal settlement, tax management, and fiat conversion continue to require institutional involvement, but where the intermediary’s only function is to occupy a position in the payment chain and collect a toll for doing so, stablecoins eliminate that function, and the economics of cross-border payment change accordingly.

This paper examines the institutional economics of the correspondent banking system and who bears its costs; the emergence of stablecoins as a rational engineering response to cryptocurrency volatility and the institutional resistance that followed; the arithmetic of cost compression and the new commercial structures that near-zero transaction costs make possible; the standardization infrastructure that enabled adoption at scale and the political economy of disintermediation; and the geopolitical stakes of a world in which dollar-denominated stablecoins are extending US monetary reach while the evidence for broad transformation of the global monetary order remains less definitive than the evidence for payment system disruption and transactional dollarization.

The paper reaches two central findings connected by one original analytical observation. Stablecoins are delivering measurable financial inclusion by compressing transaction costs through the removal of intermediary layers and doing so in a way that simultaneously deepens global dollar dependence and changes the economics of cross-border payments. The connecting observation is a Hayekian irony. Hayek predicted that currency competition would produce monetary diversity, with privately issued instruments displacing inferior state monies. What has materialized is almost the inverse. Market competition has not produced competing monies; it has produced competing delivery mechanisms for the dollar, extending its reach through private innovation into geographies and populations that correspondent banking never served, and making the dollar more deeply embedded in the global economy than any deliberate act of monetary statecraft could have achieved.

Key Points

1. Dollar-pegged stablecoins offer the first credible bypass of the traditional correspondent banking system at scale, reducing a transfer that costs $15 through a traditional operator to a fraction of a cent settled in seconds on blockchain networks.
2. Near-zero transaction costs make entirely new commercial structures possible, from micropayments and real-time salary streaming to programmable funds that release automatically when contract conditions are met.
3. The populations that benefit most are those the legacy system is not designed to serve, including the 1.4 billion unbanked adults and workers in high-fee remittance corridors across Africa, Latin America, and Southeast Asia.
4. Stablecoins have become competing delivery mechanisms for the dollar itself, deepening global dollar dependence more effectively than any deliberate act of monetary statecraft.
5. The geopolitical stakes are significant because dollar stablecoins extend U.S. monetary reach and Treasury demand even as China builds parallel infrastructure like the e-CNY and mBridge to reduce its exposure to dollar-based coercion.

Introduction

A domestic worker in Manila earning $800 a month in Singapore sends $200 home to her family. Through a traditional remittance operator, she pays approximately $12 in combined fees and exchange rate markups, roughly six percent of the transfer, extracted before a peso reaches her family’s hands.^[1] The same transfer sent in stablecoin on the Solana blockchain costs $0.00025, the money arrives in seconds, no bank account is required on either end, and no correspondent institution takes a cut in the middle.^[2]

That gap, from $12 to a fraction of a cent, is the result of an institutional bypass. The existing correspondent banking system was designed primarily to serve the institutions that built it, and those institutions charged accordingly for every hop in the payment chain. Stablecoins are the first instruments that compress those costs by removing intermediary layers entirely and route around the current system to expand the range of transaction types. 

This paper frames that process as progressive disintermediation: the selective erosion of intermediary functions where costs have become prohibitively high for many transactions.Stablecoins do not displace intermediaries in all contexts; compliance, legal settlement, tax management, and fiat conversion continue to require institutional involvement, but where the intermediary’s only function is to occupy a position in the payment chain and collect a toll for doing so, stablecoins eliminate that function, and the economics of cross-border payment change accordingly.

The scholarship this paper engages spans three bodies of literature. The first is the monetary theory tradition. Georg Simmel, in The Philosophy of Money, analyzed money as a social institution encoding a hierarchy of influence rather than a neutral medium of exchange.^[3] Geoffrey Ingham extended that analysis in The Nature of Money, arguing that money is always a creature of the institutional and political arrangements that create and sustain it, which is precisely why its transformation is never merely technical.^[4] In The Denationalisation of Money, Friedrich Hayek argued that competing privately issued currencies would converge on whichever instruments offered the greatest stability and lowest costs.^[5] The monetary theory tradition establishes that money is never a neutral technical instrument but always a social and institutional one, which means that any technology capable of rewriting the rules of monetary settlement is also, necessarily, rewriting the distribution of power that those rules sustain.

Hayek did not anticipate stablecoins, but his framework describes their emergence with stunning precision: they are privately issued, they compete for adoption on the basis of stability and utility, and the most successful among them have captured dominant market share through exactly the mechanism he predicted. The irony that his vision of currency competition has materialized not as a challenge to the dollar but as an extension of it is one of this paper’s central analytical findings.^[6] Milton Friedman’s case for rules-based monetary systems reinforces the same point: the correspondent banking system’s rent structure persists because institutional discretion protects it, and stablecoins reduce that discretion by making the rules of settlement mathematical and transparent.^[7]

The second body of literature is financial innovation scholarship. Robert Merton’s framework distinguishes between incremental improvements to existing products and changes to the underlying infrastructure through which financial activity flows.^[8] Stablecoins belong firmly to the second category: they do not make wire transfers cheaper, they make wire transfers unnecessary for a growing range of transactions, compressing costs not by competing within the correspondent banking chain but by removing the chain itself for transaction types where its costs exceed benefits. Lawrence H. White’s work on free banking provides a useful historical anchor. Competitive private currency issuance has precedent, and its most effective historical episodes were characterized by precisely the transparency and reserve discipline that Markets in Crypto-Assets (MiCA) and the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act now mandate.^[9]

The third body of literature is the political economy of global finance. Eric Helleiner, in The Status Quo Crisis, has documented how the postwar dollar order was constructed through deliberate institutional choices rather than market competition.^[10] Benjamin Cohen has analyzed, in Currency Power, how currency dominance generates structural power, the ability to shape the choices available to others without exercising explicit coercion.^[11] Both traditions converge on the same prediction that this paper’s evidence confirms: private actors issuing stable dollar-denominated instruments that markets voluntarily adopt produce dollar entrenchment, not the erosion of dollar dominance. The evidence strongly supports increased access to dollars, transactional dollarization, and payment system disruption; it is less definitive where broad transformations of the global monetary order are suggested.

The paper proceeds in five sections. Section 1 establishes who bears the costs of the correspondent banking system and why. Section 2 traces the emergence of stablecoins as an engineering response to cryptocurrency volatility and the institutional resistance that followed. Section 3 quantifies the cost compression stablecoins deliver by removing intermediary layers, and examines the new commercial structures that near-zero transaction costs make possible. Section 4 examines the standardization infrastructure that enabled stablecoin adoption at scale, the political economy of disintermediation, and who is cut out of the legacy system and why. Section 5 examines the geopolitical stakes of a world in which dollar-denominated stablecoins are extending US monetary reach while China constructs a parallel digital currency infrastructure designed to reduce dependence on it.

1. The Reach and Impact of Stablecoins on Traditional Banking

1.1 Who Stablecoins Actually Serve

Uses of stablecoins span the digital economy. Crypto traders use them as an internal unit of account, decentralized finance protocols use them as collateral and liquidity, and businesses use them for cross-border payments and payroll. The aggregate numbers, however, require significant qualification. Of the roughly $35 trillion in stablecoin transaction volume processed in 2025, only approximately $390 billion represented genuine end-user payments (about 1.1 percent); the remainder was crypto trading, internal treasury shuffling, and automated smart-contract activity.¹² Within that adjusted figure, B2B cross-border payments led at $226 billion (58 percent), followed by payroll and remittances at $90 billion (23 percent), and stablecoin-linked card spending at $4.5 billion (1.2 percent).^[13]

The B2B dominance reflects concrete operational savings. A company using stablecoins for international supplier payments eliminates the $25–$45 flat origination fee, the 1–3 percent foreign exchange markup, and the 1–5 day settlement delay that conventional wires impose on every transaction. For individuals, the most consequential application is remittances: workers sending wages home can transmit value in seconds for a fraction of a cent, bypassing a correspondent banking chain that would otherwise extract 5 to 7 percent of every transaction.^[14] The $90 billion in stablecoin remittances represents roughly one percent of the $100 trillion global remittance market. Although this is small in absolute terms, this segment of the market is growing rapidly.^[15]

These flows contribute to tremendous geopolitical influence. The Federal Reserve estimates that roughly half of the approximately $2.3 trillion in US currency in circulation is held outside the United States.^[16] This US currency held abroad represents a form of monetary influence requiring no treaty or banking relationship to sustain, which strengthens the dollar’s dominance on the global stage. Stablecoins are not, however, transformative everywhere. Curiously, for most Americans, the problems stablecoins solve largely do not exist. The dollar is already stable, already digital, already fast. The populations that benefit most are those for whom legacy financial infrastructure is absent, dysfunctional, or actively hostile. In extending the dollar’s reach into those populations, stablecoins are deepening dollar dependence globally in a way that correspondent banking never could.

1.2 The Pecuniary Costs of Traditional International Transactions and Who Bears Them

The cost burden of transnational transactions falls heaviest on the populations least equipped to bear it. Global remittance flows to low- and middle-income countries reached approximately $656 billion in 2023, surpassing foreign direct investment as the largest source of external finance for those economies.^[17] The World Bank recorded a global average transfer cost of 6.2 percent in Q2 2023, Sub-Saharan Africa averaged 7.9 percent, and banks charged 12.1 percent per transaction.^[18] For B2B payments, a $50,000 supplier wire carries a flat origination fee, a foreign exchange spread of 1 to 3 percent, and a correspondent markup per hop, with total friction costs reaching $1,500 to $2,500 before accounting for the settlement delay during which the payer’s capital earns nothing.^[19] Applying the 6.2 percent average to 2023 flows implies approximately $41 billion in annual fees, the price of institutional layering.^[20]

Ronald Coase observed that when transaction costs are high, mutually beneficial exchanges are suppressed.^[21] The 1.4 billion adults who remain entirely unbanked face a starker version of the same problem.^[22] Even banked individuals and businesses in developing economies are often locked out of international payments when their local institution lacks the correspondent relationships required to route cross-border transfers, a problem that worsened after the 2008 financial crisis, when compliance costs caused the number of active global correspondent banking relationships to decline by approximately 20 percent between 2012 and 2019.^[23] These are the populations for whom the traditional banking system’s failure was most consequential and for whom the stablecoin bypass is a meaningful expansion of economic participation.

2. Stablecoin Innovators, Early Adoption, and Institutional Resistance

The correspondent banking system was not the only institution whose inadequacies drove financial innovation in the early twenty-first century. The cryptocurrency ecosystem that emerged in parallel suffered from a different but equally fundamental problem: volatility so severe that it precluded the basic functions of money. Bitcoin’s annualized price volatility has ranged between 80 and 400 percent in many years since launch, against approximately 15 percent for US equities.^[24] For a currency to function as a medium of exchange, price stability is not a preference but a prerequisite. Stablecoins address this by pegging each token to the dollar at a fixed one-to-one ratio. Among the more than 17,000 cryptocurrency projects listed on CoinGecko by April 2025, the overwhelming majority failed.^[25] Among the survivors, stablecoins occupy a unique position: they are not attempts to replace the dollar, but to digitize it.

2.1 Tether, Circle, and the DeFi Flywheel

The first stablecoin to achieve meaningful scale launched in 2014 under the name Tether, with a simple proposition: each USDT token would be redeemable for one US dollar held in reserve.^[26] The Commodity Futures Trading Commission (CFTC) found in 2021 that Tether had maintained sufficient reserves for only 27.6 percent of sampled days, having commingled reserve funds with affiliated entities and held non-fiat instruments. Tether paid a $41 million penalty.^[27] That it retained the dominant market position reflects a dynamic Gary Gorton and Jeffery Zhang traced to nineteenth-century American banking: opaque but liquid instruments can outcompete transparent but less liquid ones when network effects are sufficiently entrenched.^[28]

Circle, another global financial technology company, pursued the opposite strategy: USDC reserves are held in an SEC-registered money market fund managed by BlackRock, invested exclusively in cash and short-dated US Treasury bills, with monthly attestations by Deloitte & Touche.^[29] Visa integrated USDC for cross-border settlement in March 2021, the first stablecoin accepted into a major card network, and by August 2024 USDC’s on-chain volume surpassed USDT’s for the first time.^[30] Tether retains its market capitalization lead at roughly 60 percent against USDC’s 25 percent, but USDC’s growth rate has outpaced Tether’s in both 2024 and 2025, driven by MiCA enforcement in Europe and Circle’s NYSE IPO in June 2025.^[31] 

The divergence reflects two distinct theories of what money most needs to be: liquidity first, or credibility first. Both USDT and USDC achieved their deepest entrenchment through adoption as the base layer of decentralized finance, where stablecoins function as internal cash, collateral, liquidity, and settlement denomination simultaneously.^[32] By November 2021, total assets deposited in DeFi had grown to $192 billion, 40 to 60 percent denominated in stablecoins at the peak.^[33] Each episode of cryptocurrency volatility leaves the demand for a stable digital dollar reinforced.^[34]

2.2 Institutional Resistance and the Regulatory Reckoning

Commercial banks, central banks, and financial regulators all have distinct reasons to view stablecoins as a threat. For commercial banks, the threat is structural: correspondent banking generates billions annually in wire fees, foreign exchange spreads, and float income, and instant stablecoin settlement eliminates all three. The IMF has warned that if savings and payments migrate into stablecoins, banks lose a key funding source.^[35]

Banks have responded by lobbying for restrictive regulation while simultaneously building their own products. JPMorgan launched JPMD for institutional clients in November 2025, and Citi runs Citi Token Services for Cash around the clock.^[36] For central banks, the concern is monetary traction: when citizens in Argentina or Turkey hold dollar stablecoins instead of domestic currency, seigniorage and monetary policy both weaken, most acutely where adoption is growing fastest.^[37] For regulators, the concerns center on consumer protection and systemic risk: stablecoins carry no deposit insurance, and the Financial Stability Board warned in 2020 that a globally scaled stablecoin could transmit shocks across borders faster than existing frameworks could contain.^[38]

No event did more to validate these concerns than the collapse of TerraUSD (UST) in May 2022. This stablecoin maintained its peg through a mathematical relationship with a companion token called LUNA rather than through actual dollar reserves.^[39] When withdrawals caused UST to slip below one dollar, each redemption minted new LUNA tokens, crashing LUNA’s price and triggering more redemptions.^[40] This caused a death spiral researcher Ryan Clements had predicted a year earlier, arguing that algorithmic stablecoins were structurally incapable of surviving a loss of confidence because confidence itself was the only collateral.^[41] The Terra ecosystem had a market capitalization exceeding $60 billion at its peak; within a week most of that value was gone, and the contagion pulled down Celsius Network, Three Arrows Capital, Voyager Digital, Genesis, and BlockFi, with total losses exceeding $400 billion.^[42]

The regulatory response was swift but fragmented. The EU’s MiCA, fully in effect by June 30, 2024, requires 100 percent liquid reserve backing in segregated accounts, bans algorithmic stablecoins outright, and has become the global benchmark. Tether was delisted from major European exchanges while Circle registered in France and complied.^[43] The UK and Singapore implemented parallel frameworks in 2023.^[44] And the GENIUS Act, signed into law in the United States on July 18, 2025, created the first federal framework requiring 100 percent reserve backing, monthly disclosures, and federal licensing.^[45]

Running in parallel, 117 countries representing 98 percent of global economic output are exploring or developing central bank digital currencies, state-issued instruments programmable under government control that critics argue could enable transaction monitoring at scale, conditional spending restrictions, or asset freezes without judicial process.^[46] The United States has explicitly paused retail CBDC development, leaving dollar stablecoins as the primary vehicle for extending digital dollar reach globally.^[47] The regulatory frameworks now taking shape will determine how stablecoins are governed and whether the progressive disintermediation they have already set in motion is allowed to continue.

3. Massive Cost Reduction

Sections 1 through 2 established the architecture of the shortcomings of the existing infrastructure: a payments system built on layered intermediaries, each collecting a toll for occupying a position in the chain, and a regulatory environment only beginning to establish the rules under which alternatives can operate. Section 3 turns to the arithmetic of efficiency. The cost case for stablecoins is a matter of massive cost reduction, as they enable fewer hops, faster settlement, and programmable logic. Each of these changes the economics of moving money in ways that compound rather than merely add to the global financial infrastructure.

3.1 What a Wire Transfer Actually Costs

The stated fee on a typical wire transfer is the cheapest part of the transaction, and understanding the full cost structure is essential to appreciating what stablecoins actually displace. A US company pays a flat origination charge of $30 to $50, but the bank also applies its own exchange rate rather than the publicly available interbank rate, typically 2 to 7 percent above it, a markup that does not appear as a line item on the transaction confirmation.^[48] International wires then pass through correspondent banks, each entitled to deduct a handling charge of $15 to $30 or more per hop, with the sender having no way of knowing in advance how many correspondents the payment will traverse or how much each will demand.^[49] Added to this is one to five business days of float, capital tied up during settlement, generating no return.^[50] For a business processing twenty international transfers per month, these accumulated costs can amount to tens of thousands of dollars annually, and none of them disclosed clearly at the point of initiation.

Against this, stablecoins offer a structurally different cost profile. A USDT transfer on the Tron Network costs between $0.10 and $1 and settles in 3 to 5 seconds; on Solana, the cost is $0.00025 per transaction regardless of amount, settled in 400 milliseconds.^[51] The one legitimate caveat is currency conversion: moving fiat into a stablecoin and back out again typically carries charges of 0.1 to 3 percent, and higher in some emerging markets. Sub-Saharan Africa and Latin America can see foreign exchange fees of 7.4 and 5.8 percent respectively.^[52] Traditional intermediaries also continue to play important roles in compliance, tax management, legal settlement, and fiat conversion that stablecoin infrastructure does not yet replicate. The case for stablecoins is strongest where transaction volumes are high, fees are large, and settlement speed is valued.

3.2 What Becomes Possible When the Fee Approaches Zero

The more consequential point is that stablecoins enable categories of transaction the legacy system cannot perform at any price. A $0.001 payment is structurally impossible to route through traditional banking; processing overhead exceeds the transaction value by orders of magnitude. On Solana, the cost is $0.00025 whether the transaction is $0.001 or $1 million.^[53] When the floor disappears, entirely new commercial structures become viable: a reader paying $0.003 for a single article, a developer paying $0.0001 per API call, an AI agent paying another autonomous system $0.00008 for a data query in real time without human authorization at each step.^[54]

Real-time salary streaming illustrates what happens when settlement delay approaches zero. Superfluid, a protocol operating on Ethereum and Polygon, enables an employee earning $3,000 per month to receive a continuous stream of 7 cents USDC per minute, the balance in their wallet rising in real time rather than accumulating until a designated payday.^[55] By March 2025, Superfluid had processed more than $150 million in cumulative streaming flows.^[56] Smart contracts extend the logic further: because USDC and USDT can be held inside a smart contract and released according to its rules, funds can be programmed to release automatically upon delivery confirmation or completion of a milestone without attorneys, intermediaries, or delay. This programmability is arguably the feature that most fundamentally distinguishes stablecoins from every prior payment instrument: money governed by mathematical rules rather than by institutions charging for the privilege of occupying the trusted position between counterparties.^[57]

3.3 The Finality Premium

A cost that never appears in a wire transfer fee schedule is the cost of the payment not being final. Economists since Coase have recognized that uncertainty about whether an exchange has been completed is itself a cost, manifesting in withheld services, dispute management overhead, and the capital reserves merchants maintain against chargeback exposure. A wire transfer that appears to have settled is not permanent; a bank, a court, or a card network can reverse it days later. Global chargeback costs reached $117.47 billion in 2023; first-party fraud, when cardholders falsely dispute legitimate purchases, accounted for 36 percent of all payment fraud globally in 2024, constituting a $132 billion risk to e-commerce.^[58] 

When a stablecoin transaction settles on a proof-of-stake blockchain, it reaches cryptographic finality, secured by mathematical proof rather than institutional promise, with no bank, court, or authority able to reverse it. Solana reaches economic finality in approximately 12.8 seconds; Ethereum in three to six minutes.^[59] For wholesale markets, large over-the-counter trades require both sides to post collateral precisely because settlement is probabilistic. Stablecoin settlement eliminates that window, and with it the collateral requirement.^[60] Fee compression is the most visible stablecoin advantage, but float elimination, finality, programmability, and fraud risk reduction compound the savings considerably.

3.4 The Freelance Economy and Platform Payment Friction

For the hundreds of millions of workers who earn their living through global freelance platforms, stablecoins are revolutionary. Global freelance platforms including Fiverr, which charges a flat 20 percent service fee, and Upwork, which charges between 5 and 20 percent depending on contract value, process billions in cross-border payments annually.^[61] These fees compound on top of foreign exchange and wire transfer costs for contractors in Sub-Saharan Africa, Southeast Asia, and South Asia — a graphic designer in Hanoi completing a $500 project may receive $400 after platform fees, then lose a further 3 to 5 percent in conversion costs, if they hold a bank account that accepts international transfers at all.^[62]

Stablecoin payroll infrastructure has developed specifically to eliminate this friction. Bitwage reports having paid over 90,000 workers across 4,500 companies since its founding.^[63] Remote launched USDC payouts in December 2024, enabling contractors in 69 countries to receive payment on the Base blockchain at settlement costs measured in cents, and Deel, the largest HR platform by payroll volume, announced its stablecoin feature in February 2026.^[64] A software developer in Karachi or a content writer in Nairobi can now receive payment in seconds in a stable dollar-denominated asset without holding a US bank account, without navigating a correspondent chain, and without paying the fees that those chains collect.

4. Standardization, Disintermediation, and the Politics of Financial Access

4.1 Why Stablecoins Scale: Standards, Composability, and Cross-Chain Infrastructure

The reason stablecoins scaled as rapidly as they did, becoming the base layer of an entirely new financial ecosystem rather than remaining a niche instrument, comes down to a technical proposal submitted to a public forum a decade before most of the world had heard of stablecoins. The Ethereum Request for Comment 20 (ERC-20) standard, proposed by Fabian Vogelsteller and Vitalik Buterin in November 2015, solved a fragmentation problem that had made digital tokens incompatible by default.^[65] Before ERC-20, every token issuer invented its own interface; every wallet or exchange listing a new token had to write new code. ERC-20 required all tokens to answer the same basic questions in the same way, meaning any wallet, exchange, or application supporting the standard automatically supports every token built to it, including USDC, USDT, and DAI, which together exceeded $271 billion in combined circulating supply as of Q1 2026.^[66] The historical parallel is the standardized shipping container: Marc Levinson documented how that single act of standardization did more for global trade than decades of tariff negotiations.^[67] ERC-20 did the same for digital value transfer by making interoperability the default.

Because all ERC-20 stablecoins share the same interface, they are composable, pluggable into any application as standardized components. A single USDC token can simultaneously serve as collateral in a lending protocol, as a trading pair on a decentralized exchange, and as liquidity in a yield pool, with none of these uses excluding the others.^[68] Fabian Schär, writing in the Federal Reserve Bank of St. Louis Review, described this composability as the defining architectural feature of decentralized finance: each new protocol that accepts USDC increases its utility across the entire ecosystem, and each new user expands the network that every USDC-accepting protocol can reach.^[69] This compounding dividend has no equivalent in traditional finance, where every new connection requires a separate integration agreement.

Other blockchains developed their own standards. Solana’s SPL and Binance’s BEP-20 are each functional within its ecosystem but unable to communicate natively with others.^[70] Cross-chain bridges addressed this but concentrated enormous value in single points of failure: Wormhole was exploited for $320 million in February 2022 and Ronin for $625 million in March 2022.^[71] Circle’s Cross-Chain Transfer Protocol, launched in 2023, solves the bridge problem by burning USDC on the source blockchain and minting equivalents on the destination at the issuer level, eliminating the vault of locked assets that bridges require.^[72] The trend is toward open, issuer-level interoperability, a direction that points toward a financial system with fewer chokepoints and lower costs at every layer.

4.2 Who Is Cut Out and Why It Matters

The Federal Reserve’s December 2025 analysis confirmed that stablecoins threaten banks’ deposit bases by offering an attractive alternative for customers seeking digital dollar holdings.^[73] A March 2026 IMF working paper quantified the market’s assessment: US stablecoin legislation reduced the combined market value of incumbent payment firms by approximately $300 billion, with the largest effects on firms focused on cross-border payments.^[74] Banks have responded with two strategies, building their own products (JPMorgan’s JPMD, Citi Token Services for Cash) and lobbying for rules that limit stablecoin issuance to bank-equivalent entities, both reflecting the same recognition that the correspondent banking rent structure is under genuine competitive pressure for the first time in decades.^[75] 

The institutions facing the most acute pressure are not the large banks, which have resources to adapt, but the remittance agents whose entire business model is the intermediary markup. As Bitso, GCash, and Yellow Card demonstrate in the corridors analyzed in Section 3, stablecoin infrastructure performs the same transfer for under 1 percent, compared with the 5 to 10 percent that Western Union and MoneyGram charge.^[76] Scholars Markus Brunnermeier, Harold James, and Jean-Pierre Landau argued that the digitalization of money would structurally displace intermediaries whose value derived from information asymmetries and physical network access rather than productive activity.^[77] The remittance agent is precisely that intermediary.

The same architectural feature that threatens incumbents, the removal of the requirement to route value through a licensed institution, is what gives stablecoins their financial inclusion potential. Traditional financial access requires identity verification, a documented credit history, minimum account balances, and physical proximity to a branch.^[78] A self-custodied stablecoin wallet requires a smartphone, an internet connection, and a seed phrase.^[79] The World Bank’s Global Findex 2021 identified 1.4 billion unbanked adults globally, most with mobile phone access.^[80] 

Stablecoins are the first financial instrument that can realistically reach this population at scale. Permissionless access also enables permissionless misuse: Chainalysis estimated illicit activity at 0.34 percent of total cryptocurrency volume in 2023, and TRM Labs found that illicit entities received approximately $141 billion via stablecoin wallets by 2025, with sanctions evasion accounting for 86 percent of illicit flows.^[81] The ratio of licit to illicit activity is not ambiguous at over $1 trillion in legitimate monthly volume, but the same properties that make stablecoins transformative for a remittance sender in Manila also make them useful to a sanctions-evasion network in Moscow, and any policy framework that fails to reckon with both will either suppress the innovation or fail to contain the risk.

4.3 The Political Economy of Financial Control

The centralization of power in the legacy financial infrastructure is not coincidental. It is the predictable outcome of the incentive structures that James Buchanan and Gordon Tullock identified: when the benefits of regulatory protection are concentrated among well-organized incumbents and the costs dispersed across millions of consumers and small businesses, incumbents systematically invest in lobbying for rules that entrench their position.^[82] The handful of money-center banks that dominate global dollar clearing earn rents from a system whose costs fall on migrant workers, small importers, and unbanked populations with no meaningful political voice. The revolving door between senior positions at the Federal Reserve, the Office of the Comptroller of the Currency, and the major banks they regulate creates what George Stigler identified as regulatory capture: the regulated industry gradually shapes the regulatory apparatus to serve its interests through shared expertise, personnel overlap, and institutional familiarity rather than through corruption.^[83]

Licensing requirements for money transmission, know-your-customer obligations, and minimum capital requirements are defensible on consumer protection grounds but also function as barriers to entry that protect incumbents from competition. Mancur Olson’s analysis of collective action explains why these barriers persist: the concentrated interests that benefit organize effectively and lobby persistently, while the dispersed interests that bear the costs never coalesce into a countervailing political force.^[84] The result is a financial system formally open but practically exclusionary for the 1.4 billion people who cannot meet its documentation requirements, minimum balances, or geographic access conditions.

Stablecoins disrupt this system through technology, jurisdictional arbitrage, and institutional bypass. A stablecoin issuer operating under the GENIUS Act, in Singapore, or in the UAE does not need the permission of JPMorgan or Western Union to move dollars across borders. Henry Farrell and Abraham Newman’s framework of weaponized interdependence shows that financial coercion depends on chokepoints, nodes through which value must pass and which can be monitored, taxed, or closed.^[85] 

Stablecoins erode those chokepoints without eliminating them entirely. USDC issuers can blacklist addresses and the GENIUS Act subjects licensed issuers to federal oversight, but they reduce the mandatory transit points through which value must pass, and with them the rents incumbents extract and the leverage states exercise. The correspondent banking system was built by institutions that understood, intuitively if not explicitly, that controlling the rails meant controlling the rents. Stablecoins are rewriting those rules for a growing range of transaction types, changing the incentives of banks that once profited from friction, regulators shaped by incumbents, and populations that were previously excluded by design.

5. Dollar Hegemony and Geopolitical Stakes

Stablecoins are geopolitically consequential primarily because they are almost entirely dollar-denominated. Their global adoption is, in effect, the global adoption of the dollar by a new generation of users, and that fact has not been lost on Washington, Beijing, or anyone else with a stake in the future of the international monetary system.

5.1 The Dollar’s Structural Power, Its Vulnerabilities, and China’s Response

The dollar comprised approximately 58 percent of officially disclosed global foreign exchange reserves in 2024, down from a peak of 72 percent in 2001 but still dominant over the euro at 20 percent and the renminbi at 2 percent.^[86] Global commodities are invoiced in dollars, international debt markets are dollar-denominated, and SWIFT runs on dollar clearing; each feature reinforces the others.^[87] Barry Eichengreen described this as the exorbitant privilege of reserve currency status: lower borrowing costs, seigniorage income on the global dollar supply, and the ability to deploy financial infrastructure as a coercive tool through sanctions.^[88] That coercive capacity is also the system’s greatest vulnerability: the disconnection of Iranian banks from SWIFT in 2012 and Russian banks in 2022 demonstrated that states excluded from the dollar system have nothing to lose by going around it.^[89]

Stablecoins enter this picture as an unexpected reinforcement of dollar reach. The Federal Reserve’s 2025 report noted that dollar stablecoin market capitalization reached approximately $220 billion by April 2025, with stablecoins appearing to be used as an alternative to US banknotes in some developing countries.^[90] Every individual or business outside the United States that adopts USDC or USDT is opting into the dollar system without a bank account, without a correspondent banking relationship, and without any direct interaction with US financial institutions. Benjamin Cohen’s framework of currency power argues that the state whose money others choose to hold gains structural leverage over their economic decisions through the dependency that comes from using another country’s money as your own, a dependency that stablecoins are now accelerating at a scale no prior instrument of dollar diplomacy could match.^[91]

China’s strategic response is the most consequential geopolitical development in digital finance. By December 2025, the e-CNY had processed approximately $2.3 trillion in transactions, an increase of over 800 percent from 2023.^[92] The mBridge cross-border settlement platform, operated by the central banks of China, Hong Kong, Thailand, the UAE, and Saudi Arabia, processed $55.5 billion across 4,000 transactions by January 2026, with e-CNY accounting for 95 percent of settlement volume. The Bank for International Settlements exited the project in October 2024 amid concerns about sanctions evasion.^[93] 

Martin Chorzempa has argued that China’s ambitions are less about displacing the dollar globally than about creating parallel infrastructure that reduces Beijing’s vulnerability to dollar-denominated coercion in specific corridors.^[94] Peter Earle characterizes the broader dedollarization trend as slow diversification rather than catastrophic displacement, likely to unfold over decades.^[95] The evidence supports that framing: mBridge’s incremental erosion of dollar dominance in Belt and Road corridors is a genuine threat, but the evidence for broad transformation of the global monetary order remains less definitive than the evidence for increased payment system competition.

5.2 Stablecoins as a US Strategic Asset

Washington has responded by recognizing dollar stablecoins as a geopolitical instrument. Representative Patrick McHenry stated publicly that stablecoins are a way to ensure the dollar remains the world’s reserve currency.^[96] The logic is direct: as stablecoin adoption grows globally, so does demand for the dollar assets that back them. Circle holds USDC reserves almost entirely in short-dated US Treasury bills; Tether held nearly $100 billion in short-dated Treasuries by early 2025, making it one of the largest non-sovereign buyers of US government debt in the world.^[97] 

Treasury Secretary Scott Bessent signaled that he expects the stablecoin market to reach roughly $2 trillion and become a structural source of demand for US government securities. The President’s Working Group anticipated this in its 2021 report, noting that dollar stablecoins could prompt a virtuous cycle of Treasury demand.^[98] This argument has genuine merit, but it carries a caution Washington has been slower to acknowledge: additional demand for US debt without accompanying fiscal discipline will likely enable larger deficits rather than reduce them, expanding the buyer base until the market again faces a shortage of buyers, only with far more debt outstanding.^[99]

The geopolitical logic of stablecoin adoption is a precise inversion of China’s strategy. Where China is building parallel infrastructure to reduce dependence on the dollar, the United States is using private stablecoin issuers to extend dollar reach into the corridors where that dependence is weakest, the unbanked populations of Sub-Saharan Africa, the inflation-ravaged economies of Latin America, and the remittance corridors of Southeast Asia. Dollar stablecoins command over $300 billion in market capitalization and process over $1 trillion in monthly transactions; the e-CNY, for all its domestic scale, has negligible international adoption outside the mBridge network. Eswar Prasad observed in The Dollar Trap that the dollar’s dominance is sustained less by American power than by the absence of a credible alternative.^[100] Dollar stablecoins reinforce that trap by extending the dollar’s accessibility into digital environments where no prior dollar instrument could operate, and in doing so, they may prove to be the most effective instrument of dollar hegemony that was never deliberately designed as one.

Conclusion

Forty-one billion dollars. That is what the world’s migrant workers, small businesses, and unbanked populations paid in remittance fees in 2023, not the cost of moving money, but the cost of institutional layering.^[101] That layering is the target of progressive disintermediation: stablecoins do not attack the correspondent banking system wholesale, but they erode it selectively, function by function, in the corridors where intermediary costs most conspicuously exceed the value those intermediaries deliver. Stablecoin adoption is highest precisely where the legacy toll was heaviest, in Argentina, where 211 percent inflation made the peso functionally unusable; in Lebanon, where the banking system stopped functioning; in the remittance corridors of West Africa and Southeast Asia, where fees of 8 to 12 percent consumed a meaningful fraction of every wage sent home. The people driving adoption evaluated the alternative and found it superior, and that volume of adoption will be difficult to regulate away.

The paper’s core argument is that stablecoins compress transaction costs by removing intermediary layers, and that this compression changes the economics of cross-border payment in ways that are already measurable and will be difficult to reverse. Banks and remittance agents whose revenue depended on occupying mandatory transit points must now justify those costs in corridors where lower-cost alternatives demonstrably exist. Regulators whose frameworks were shaped by the industries they oversaw must contend with infrastructure that does not require their permission. The populations that were priced out of formal finance find themselves inside it.^[102]

Two findings together define the stablecoin moment: measurable financial inclusion for populations the correspondent banking system systematically excluded, achieved simultaneously with a deepening of global dollar dependence and an expansion of US financial reach. The evidence strongly supports both of these claims, increased access to dollars, transactional dollarization, and payment system disruption. Where the evidence is less definitive is in claims about broad transformation of the global monetary order; what is happening is more precisely described as the selective erosion of the correspondent banking system’s chokepoints, corridor by corridor, transaction type by transaction type.^[103]

The paper’s most original insight is the Hayekian irony at the center of this story. Hayek predicted currency competition would produce monetary diversity: that the best currencies would displace inferior state monies. What has actually materialized is almost the inverse. The currency that has won the competition is the dollar, and the competing delivery mechanisms through which it is accessed, USDC, USDT, and their successors, are privately issued, market-selected instruments that triumphed precisely because they offer stability and low costs. Market competition has not produced competing monies. It has produced competing delivery mechanisms for the dollar, extending its reach through private innovation into geographies and populations that correspondent banking never served, and making the dollar more deeply embedded in the global economy than any deliberate act of monetary statecraft could have achieved. 

The more instructive regulatory lesson comes from MiCA: jurisdictions that provide clear rules attract compliant issuers and capture the economic activity that regulatory ambiguity drives elsewhere.^[104] For central banks in emerging markets, a CBDC that is slower, less programmable, or more surveilled than USDC will not win adoption on the basis of sovereign backing alone. For national security professionals, proportionality is the operative principle: enforcement frameworks calibrated to eliminate all illicit use will suppress the legitimate use that represents the overwhelming majority of activity, and push both toward infrastructure that resists oversight entirely.^[105] Whether stablecoins fulfill their infrastructural potential or get shaped into something resembling the system they were built to displace will depend on the regulatory frameworks and geopolitical pressures still being negotiated, but the progressive disintermediation they have already achieved is real, measurable, and, for the populations who depend on it, very unlikely to go into reverse.^[106]

Endnotes

[1] World Bank, Remittance Prices Worldwide, Issue 46 (Washington, DC: World Bank Group, June 2023) https://remittanceprices.worldbank.org/corridor/United-States/Philippines.

[2] Solana Foundation, “What Is Solana?” Solana, accessed June 2026, https://solana.com/learn/what-is-solana.

[3] Georg Simmel, The Philosophy of Money, trans. Tom Bottomore and David Frisby (London: Routledge, 1900 [2004]).

[4] Geoffrey Ingham, The Nature of Money (Cambridge: Polity Press, 2004).

[5] Friedrich A. Hayek, The Denationalisation of Money: The Argument Refined, 3rd ed. (London: Institute of Economic Affairs, 1976 [1990]); William J. Luther, “Cryptocurrencies and the Denationalization of Money,” American Institute for Economic Research, December 3, 2018, https://aier.org/article/cryptocurrencies-and-the-denationalization-of-money.

[6] Futunn News, “Stablecoins: The Cryptographic Practice of Hayek’s Denationalization of Money,” October 15, 2025, accessed June 2026, https://news.futunn.com/en/post/63320019/stablecoins-the-cryptographic-practice-of-hayek-s-denationalization-of-money; Carol Bertaut, Bastian von Beschwitz, and Stephanie Curcuru, “The International Role of the US Dollar — 2025 Edition,” FEDS Notes (Washington, DC: Board of Governors of the Federal Reserve System, July 18, 2025), https://doi.org/10.17016/2380-7172.3856.

[7] Milton Friedman, A Program for Monetary Stability (New York: Fordham University Press, 1960).

[8] Robert C. Merton, “Financial Innovation and Economic Performance,” Journal of Applied Corporate Finance 4, no. 4 (1992): 12–22.

[9] Lawrence H. White, Free Banking in Britain: Theory, Experience, and Debate, 1800–1845, 2nd ed. (London: Institute of Economic Affairs, 1995).

[10] Eric Helleiner, The Status Quo Crisis: Global Financial Governance After the 2008 Financial Meltdown (Oxford: Oxford University Press, 2014).

[11] Benjamin J. Cohen, Currency Power: Understanding Monetary Rivalry (Princeton: Princeton University Press, 2015).

[12] McKinsey & Company and Artemis Analytics, “Stablecoins in Payments: What the Raw Transaction Numbers Miss,” February 18, 2026, accessed April 2026, https://www.mckinsey.com/industries/financial-services/our-insights/stablecoins-in-payments-what-the-raw-transaction-numbers-miss. 

[13] Ibid.

[14] RebelFi, “Stablecoins vs. SWIFT: A Real-World Cost Breakdown for Business Payments,” June 17, 2025, accessed May 2026, https://rebelfi.io/blog/stablecoins-vs-swift; World Bank, Remittance Prices Worldwide, Issue 46 (Washington, DC: World Bank Group, June 2023).

[15] McKinsey & Company and Artemis Analytics, “Stablecoins in Payments,” February 2026.

[16] Board of Governors of the Federal Reserve System, The International Role of the US Dollar, 2025 Edition, FEDS Notes (Washington, DC: Federal Reserve, July 2025).

[17] Dilip Ratha et al., “Remittances Slowed in 2023, Expected to Grow Faster in 2024,” World Bank Migration and Development Brief 40 (Washington, DC: World Bank, June 26, 2024). 

[18] World Bank, Remittance Prices Worldwide, Issue 45 (Washington, DC: World Bank Group, March 2023). Sub-Saharan Africa recorded an average of 7.92 percent in Q2 2023; banks recorded an average of 12.09 percent in Q2 2023.

[19] Plasma, “What Is FX Markup and How Currency Conversion Really Works,” Plasma Learning Center, March 27, 2026, accessed April 2026, https://www.plasma.org/learn/markup-fees.

[20] World Bank, Remittance Prices Worldwide, Issue 45 (Washington, DC: World Bank Group, March 2023). 

[21] Ronald H. Coase, “The Nature of the Firm,” Economica 4, no. 16 (1937): 386–405.

[22] Asli Demirguc-Kunt, Leora Klapper, Dorothe Singer, and Saniya Ansar, The Global Findex Database 2021: Financial Inclusion, Digital Payments, and Resilience in the Age of COVID-19 (Washington, DC: World Bank, 2022).

[23] Bank for International Settlements, “New Correspondent Banking Data — The Decline Continues,” CPMI Commentary (Basel: BIS, May 2019), https://www.bis.org/cpmi/paysysinfo/corr_bank_data/corr_bank_data_commentary_1905.htm; Congressional Research Service, “Overview of Correspondent Banking and ‘De-Risking’ Issues,” IF10873 (Washington, DC: Library of Congress, April 2022).

[24] Benzinga, “Crypto’s Shocking Transformation: How Bitcoin Volatility Plummeted From 400% To 80%,” Yahoo Finance, accessed May 2026, https://finance.yahoo.com/news/cryptos-shocking-transformation-bitcoin-volatility-141717241.html; Robert Shiller, Irrational Exuberance, 3rd ed. (Princeton: Princeton University Press, 2015).

[25] CoinLedger, “How Many Cryptocurrencies Are There in 2025?” CoinGecko listed 17,134 coins as of April 2025.

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[28] CoinDesk, “Stablecoin Surge: Tether’s Headroom for Growth,” May 8, 2024, https://www.coindesk.com/markets/2024/05/08/stablecoin-surge-tethers-headroom-for-growth; Gino Matos, “Tether’s $181B Paradox: How USDT Keeps Growing as Its Market Share Collapses Under MiCA,” CryptoSlate, October 21, 2025, accessed May 2026, https://cryptoslate.com/tethers-181b-paradox-how-usdt-keeps-growing-as-its-market-share-collapses-under-mica/; Gary B. Gorton and Jeffery Y. Zhang, “Taming Wildcat Stablecoins,” University of Chicago Law Review 90, no. 3 (2023): 909–971.

[29] Eco, “Inside Circle: How USDC Is Issued,” accessed March 2026, https://eco.com/support/en/articles/14796318-inside-circle-how-usdc-is-issued.

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[31]CoinDesk, “Tether and Circle’s Dominance Is Being Put to the Test,” October 11, 2025, https://www.coindesk.com/opinion/2025/10/11/tether-and-circle-s-dominance-is-being-put-to-the-test; KuCoin, “USDC Growth Rate Surpasses USDT in 2025, Signals Stablecoin Shift,” January 6, 2026, https://www.kucoin.com/news/flash/usdc-growth-rate-surpasses-usdt-in-2025-signals-stablecoin-shift; BitRss, “Circle’s USDC Outpaces Tether in 2024 Market Cap Growth,” accessed June 2026, https://bitrss.com/circle-s-usdc-outpaces-tether-in-2024-market-cap-growth-signaling-intensified-stablecoin-competition-51040; CryptoSlate, “Tether’s USDT Fell from 70% Market Dominance in November 2024 to 59.9% by October 2025,” October 21, 2025, https://cryptoslate.com/tethers-181b-paradox-how-usdt-keeps-growing-as-its-market-share-collapses-under-mica; Eco, “What Is USDC? Circle’s Regulated Digital Dollar in 2026,” accessed April 2026, https://eco.com/support/en/articles/10944149-what-is-usdccircle-s-regulated-digital-dollar-in-2026.

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[35] International Monetary Fund, “Understanding Stablecoins,” IMF Discussion Paper (Washington, DC: IMF, December 2025), https://www.imf.org/-/media/files/publications/dp/2025/english/usea.pdf. 

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[37] IMF, “Understanding Stablecoins,” December 2025.

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[40] Ibid. 

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[62] Ibid.

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[68] Fabian Schär, “Decentralized Finance: On Blockchain- and Smart Contract-Based Financial Markets,” Federal Reserve Bank of St. Louis Review 103, no. 2 (2021): 153-174; ConsenSys, “The State of the DeFi Ecosystem: 2023 Report” (Brooklyn: ConsenSys, 2023). 

[69] Ibid. p. 155-156. 

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[82] James M. Buchanan and Gordon Tullock, The Calculus of Consent: Logical Foundations of Constitutional Democracy (Ann Arbor: University of Michigan Press, 1962); George J. Stigler, “The Theory of Economic Regulation,” Bell Journal of Economics and Management Science 2, no. 1 (1971): 3-21.

[83] Stigler, “The Theory of Economic Regulation,” 10-11; James Barth, Gerard Caprio, and Ross Levine, Rethinking Bank Regulation: Till Angels Govern (Cambridge: Cambridge University Press, 2006).

[84] Mancur Olson, The Logic of Collective Action: Public Goods and the Theory of Groups (Cambridge, MA: Harvard University Press, 1965). 

[85] Henry Farrell and Abraham Newman, “Weaponized Interdependence: How Global Economic Networks Shape State Coercion,” International Security 44, no. 1 (2019): 42-79.

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[91] Benjamin J. Cohen, Currency Power: Understanding Monetary Rivalry (Princeton: Princeton University Press, 2015).

[92] Caleb Hinton, “What Is the Digital Yuan?” CurrencyTransfer Expert Analysis, February 14, 2025, accessed April 2026, https://www.currencytransfer.com/blog/expert-analysis/what-is-the-digital-yuan; Atlantic Council, Central Bank Digital Currency Tracker, accessed May 2026, https://www.atlanticcouncil.org/cbdctracker; Alisha Chhangani, “What to Watch as China Prepares Its Digital Yuan for Prime Time,” Atlantic Council GeoEconomics Center, January 15, 2026, accessed May 2026, https://www.atlanticcouncil.org/blogs/econographics/what-to-watch-as-china-prepares-its-digital-yuan-for-prime-time/.

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[98] MEXC News, “Bessent Says Stablecoins Could Drive Trillion-Dollar Demand for US Treasuries,” accessed May 2026, https://www.mexc.com/news/68450, citing Financial Times reporting on Treasury Secretary Scott Bessent’s discussions with Tether and Circle following the signing of the GENIUS Act on July 18, 2025.

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[103] Julia Cartwright, “How Stablecoin Could Send Federal Spending Off the Rails,” Washington Examiner, July 14, 2025, accessed May 2026, https://www.washingtonexaminer.com/opinion/3469098/how-stablecoin-could-send-federal-spending-off-the-rails/; Carol Bertaut, Bastian von Beschwitz, and Stephanie Curcuru, “The International Role of the US Dollar — 2025 Edition,” FEDS Notes (Washington, DC: Board of Governors of the Federal Reserve System, July 18, 2025), https://doi.org/10.17016/2380-7172.3856. 69.

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[106] Eswar S. Prasad, The Dollar Trap: How the US Dollar Tightened Its Grip on Global Finance (Princeton: Princeton University Press, 2014).