The US dollar’s dominance in international trade and finance is facing threats from increasingly fractured global economic and financial systems. The foundation of the US dollar, built on the American economy’s strength in world trade, the liquidity of its financial markets and accessibility of US dollar assets, is beginning to crack. But options for digital assets that could replace the US dollar have their own challenges.
Crypto-assets such as bitcoin are inherently unstable in their purchasing power, which makes them less than ideal for international transactions. Stablecoins are more stable, as their name implies, because they are linked to fiat currency (usually the US dollar). Although stablecoins are beginning to play a larger role in international transactions, they require close ties to the US financial system and a sound regulatory framework. Stablecoins would thus increase a jurisdiction’s dependence on the United States.
As a result, many countries are exploring central bank digital currencies as an alternative to both bitcoin and stablecoins to maintain their monetary sovereignty.