Han Dieperink: The digital Trojan horse
This column was originally written in Dutch. This is an English translation
By Han Dieperink, written in a personal capacity
While bitcoin dominates the headlines, a much more important revolution is taking place behind the scenes. Stablecoins – digital copies of the US dollar – are growing so fast that they now play a major role in global demand for dollars. And with the recent approval of the Genius Act by the US Senate, Washington has made a brilliant move to turn this digital revolution to its own advantage.
How America is strengthening its monetary hegemony through stablecoins: the Genius Act
With a convincing majority of 68-30 votes, the Senate made history last week. For the first time, stablecoins will be subject to federal oversight, and both parties are satisfied. Republicans see innovation-friendly regulations that favour American companies such as Circle. Democrats get consumer protection and national security provisions.
The result? Stablecoin issuers must fully back their reserves with US government bonds and bank deposits. For Circle, which became worth £25 billion within three days of its IPO, this is worth its weight in gold. For Tether, the pressure is mounting: comply with US standards or lose market share.
However, this is where America is making a brilliant mistake. Stablecoins are identical to regular bank accounts in every way except for one crucial aspect: government protection. No deposit guarantee, no extensive supervision of financial institutions, no mechanisms to prevent bank runs. This is not just a technical detail. During the European crisis, it was precisely such a systemic flaw – banks were not required to hold capital for government bonds – that allowed a relatively small Greek crisis to escalate into a continental disaster. When a problem arises in the stablecoin world, consumers fall back on bankruptcy proceedings rather than government guarantees.
The dollarisation of the digital highway
Yet America has a brilliant strategy at the right time. As traditional dollar channels dry up – Russia and China are building alternatives, sanctions are limiting use – digital money flows like an underground river through the global economy. Stablecoins offer investors worldwide access to dollar stability without a US bank account. The effect is ingenious: local currencies weaken further, financial dependence on America grows. The Genius Act reinforces this by also subjecting foreign stablecoin issuers to US rules. The result is a global financial system in which US rules apply to digital money worldwide.
The macroeconomic consequences
Scott Bessent, Minister of Finance, sees the advantages: stablecoins can boost demand for US government bonds and reduce financing costs. For a country with a national debt of nearly $30 trillion, that is tempting. But research by the Bank for International Settlements shows the downside: if only $3.5 billion flows out of stablecoins, the interest rate on short-term government bonds rises by 0.08 percentage points. With a market of $2 trillion, the consequences for monetary policy are enormous.
The revolution is taking on a new dimension as major American retailers such as Walmart and Amazon consider launching their own stablecoins. They want to bypass the high costs of credit card companies and save billions in transaction fees. Visa and Mastercard shares have already fallen on this news. Here we see how tech giants can leverage their huge customer bases to challenge the traditional financial infrastructure.
Meanwhile, the criminal side remains a concern. A UN report identified Tether as the ‘preferred currency’ of Asian crime syndicates. According to Chainalysis, the value of criminal crypto activity last year amounted to $51 billion, 63% of which was conducted via stablecoins. Ironically, just as stablecoins are becoming mainstream, the US enforcement agencies that have been fighting crypto fraud are being restructured or dismantled.
The Trojan horse
Stablecoins may be the Trojan horse of the financial world. They appear to be a useful innovation, but they carry potential systemic risks and geopolitical shifts. The Genius Act offers stability, but at the price of further concentration of financial power in American hands. The question is not whether this digital revolution will actually happen – it has already begun. The question is whether we understand the consequences of this seemingly innocent digital money that is quietly eroding the foundations of our monetary system. For as the Trojans learned back then, even the most beautiful gifts can be dangerous.