Stablecoins and the Global Risks of a Privatised Dollar

George Gallwey argues that stabelcoins are part of a broader geopolitical strategy of using private innovation to project monetary influence abroad.

Stablecoins have moved from niche financial experiments to a central focus of U.S. monetary policy debate. But as digital assets, pegged to traditional currencies like the dollar, their promise of faster, cheaper payments comes with significant risks. If issued without robust oversight, they threaten to weaken trust in national currencies, which in the case of the U.S. dollar, could trigger rapid global liquidity crises, and challenge the Federal Reserve’s domestic and international role as lender of last resort. 

Under the Trump administration, the push for privately issued dollar-backed stablecoins, illustrates a broader geopolitical strategy of using private innovation to project monetary influence abroad, while deliberately signaling a permissive regulatory environment at home. This commentary examines the systemic, domestic, and global risks of such a strategy, drawing lessons from historical banking crises and contemporary financial technology failures.

Stablecoins and the Nature of Money

For decades, money has functioned as a hybrid of public and private issuance. Commercial banks create “inside money” through lending, but this is underpinned by central bank reserves. Inside money, issued by banks, is always exchangeable at par value with outside money, issued by a central bank. The Federal Reserve, the US central bank, and the most important global financial institution, provides domestic liquidity in financial crises and maintains liquidity swap lines with foreign central banks, ensuring trust and stability both domestically and internationally.

Stablecoins, if issued outside this hybrid system, would transform money into a purely private medium. Without clear regulatory oversight, including central bank liquidity backstops, their convertibility into central bank money would depend on market confidence in the issuer’s reserves and the robustness of its technology. In financial markets, where trust is the ultimate foundation of monetary value, confidence can vanish in an instant without clear policy mandates and institutional safeguards.

US policy makers, as well as international regulators, have raised concerns over the liquidity risks of stablecoins since the early 2020s. The Federal Reserve also noted these risks, with Nobel Prize-winning economist Jean Tirole recently warning “insufficient supervision” of stablecoins, or doubts over reserve assets, could trigger depositor runs, potentially forcing governments into multibillion-dollar bailouts. The collapse of Silicon Valley Bank in 2023 provides a modern illustration of the systemic risks of bank runs from a collapse in market confidence: rapid, technology-enabled withdrawals can destabilize even highly sophisticated financial institutions. In the context of widely adopted stablecoins, such runs could spread globally, shaking financial markets and threatening the dollar’s primacy.

Private Money and National Strategy: The Trump Era Approach to Stablecoins

In 2021 a report issued by the US President’s Working Group warned that privately issued stablecoins carry systemic risks and are safest within the banking perimeter, where oversight, risk standards, and resolution frameworks protect convertibility, reserve integrity, and financial stability. Although the report was issued under the Biden administration, the first Trump administration had also approached digital assets with noticeable caution, reflecting early recognition across administrations of the systemic risks posed by private stablecoins.

The view of stablecoins has evolved markedly both in the U.S. and internationally. Once treated with skepticism and described by policy makers as a solution in search of a problem, they are now recognized as inevitable, prompting bipartisan measures like the Genius Act and reflecting a broader U.S. desire to harness innovation for strategic advantage in the global digital currency landscape.

The second Trump administration’s stance toward digital assets reflects its broader regulatory philosophy. Regulation, particularly of emerging technologies, is seen as a barrier to innovation and U.S. market competitiveness over rivals. By signaling a permissive regulatory environment, the administration encourages the rapid adoption of private stablecoins, framing speed and technological leadership as strategic advantages. Rather than reinforcing the Federal Reserve’s role in providing strong, regulated public money, this approach elevates corporate-issued stablecoins as instruments of American financial power. 

More than a financial innovation, Trump’s stablecoin agenda is part of a deliberate geo-economic strategy. By promoting private dollar-backed digital money, the administration seeks to sustain global demand for the dollar and U.S. Treasury securities, while simultaneously increasing the dollar’s elasticity to support exports and domestic fiscal flexibility. In effect, stablecoin issuance becomes a tool not just for market innovation, but for advancing a political vision of U.S. monetary influence through privatized digital money.

At the same time, former President Trump has recently intensified his long-standing criticism of the Federal Reserve, underscoring tension with the institution responsible for monetary stability. Treasury Secretary Scott Bessent has also recently called for the capital requirements and ring-fence regulations put in place after the Great Financial Crisis to be rolled back. This signals that in the coming years an environment of much weaker regulatory policy could limit the Federal Reserve’s ability to moderate complex and emerging risks in favour of market growth in digital assets. 

Stablecoins under Congress’ proposed Genius Act would be fully backed by cash or short-term Treasury securities and comply with reporting, anti-money laundering, and sanctions requirements. This strongly agrees with the administration’s current approach that deliberately signals a low regulatory threshold, encouraging firms to establish stablecoins quickly and innovate within U.S. markets. This permissive stance is likely designed to attract private issuance and cement U.S. leadership in digital currencies, even though regulatory safeguards may be strengthened over time, as the market matures and systemic risks become clearer. 

Allowing stablecoins to be issued by non-banks effectively transforms them into private money operating outside traditional central oversight and emergency liquidity support. This would mirror the chaotic era of nineteenth-century Free Banking, when unregulated note issuance fragmented the U.S. monetary system and triggered frequent bank runs. 

Historical Lessons

In the United States, the early nineteenth century saw state-chartered banks issue their own notes, backed by reserves. This period, known as the Free Banking era, was marked by frequent bank runs, high monetary fragmentation, and huge destruction of wealth for depositors and note holders. Today, the speed and reach of digital communication amplify similar risks: mass redemptions can occur in minutes, potentially destabilizing the entire financial system. But monetary fragmentation is also a threat to the role of currency as a public good. If privately issued digital dollars circulated alongside central bank money without clear regulatory oversight, parity or “singleness” between these forms of money could break down, creating a two-tiered system where some “dollars” are more or less trustworthy, liquid, or widely accepted than others.

The historical analogy of the chaos of the Free Banking era is not merely illustrative. The Trump administration’s support for private stablecoins reflects a political nostalgia for less-regulated monetary systems. Just as Trump and the MAGA movement valorizes earlier U.S. tariff policy under McKinley, it also embraces the notion of private money issuance, echoing libertarian and fiscally conservative traditions that favor decentralized currency and reduced central bank power. In the twentieth century, neoliberal thinkers such as Friedrich Hayek promoted currency competition as a means to limit state control over money for market efficiency. However, under Trump, this logic is fused with economic nationalism, framing stablecoins as tools to advance U.S. strategic and monetary interests, while reducing traditional regulatory constraints.

Systemic and Global Risks

Stablecoins issued by large technology firms pose additional concerns. These firms benefit from oligopolistic advantages: walled gardens, platform control, and massive user networks. Establishing a credible stablecoin requires substantial capital, reserves, and operational infrastructure. A failure of one of these corporate-issued coins would necessitate significant regulatory intervention, amplifying systemic risk. 

While much of the debate focuses on private, corporate-issued stablecoins, regulated banks are entering the market, issuing their own digital dollar products. More than a dozen regulated U.S. banks are experimenting with dollar-backed stablecoins, highlighting that private issuance is not synonymous with unregulated issuance. This trend underscores that the systemic risks of stablecoins will depend not just on private tech firms, but on the broader regulatory framework and the ability of authorities to oversee all forms of digital dollar issuance. However, even if bank-issued stablecoins were to fail, such a scenario would likely remain within the banking perimeter, making it more conceivable that losses could be addressed through existing resolution frameworks or bankruptcy procedures, rather than necessitating emergency public bailouts.

Globally, the stakes are stark. The Trump administration, following a move initiated by the House of Representatives in 2024, has explicitly banned the Federal Reserve from developing a central bank digital currency (CBDC), signaling a preference for private stablecoins over central-bank-backed alternatives. China’s digital currency is tightly controlled by the People’s Bank of China and integrated into Beijing’s strategy to internationalize the yuan, challenge dollar dominance, and influence emerging markets. By contrast, U.S. private stablecoins, under current plans, would lack central bank backing or credible liquidity guarantees. Widespread international adoption could undermine the Federal Reserve’s role as the ultimate global financial backstop, weaken confidence in the dollar, and reduce U.S. influence in international financial markets.

An important historical parallel for dollar stablecoin issuance is the eurodollar system. Private dollar deposits held outside the United States grew rapidly from the 1950s onward, operating largely beyond Federal Reserve supervision. While eurodollars helped finance global trade and investment, they also amplified systemic risk by creating dollar-denominated obligations that were not fully backed or regulated, leaving both foreign banks and U.S. institutions exposed. In response to the vulnerabilities exposed by this offshore market, the Federal Reserve developed swap lines with foreign central banks to provide dollar liquidity during crises and stabilize the global financial system. Private stablecoins could replicate some of these dynamics in a digital form, magnifying risks due to their speed, technological reach, and potential to scale globally.

Emerging markets provide concrete illustrations. In Africa, unregulated stablecoins could exacerbate public finance challenges, undermine domestic currency policy, and create new vulnerabilities for central banks. Yet the market potential is enormous: some estimates suggest that over $1 trillion in global payment flows could be mediated by stablecoins. Emerging markets may be drawn to U.S. dollar–linked stablecoins for faster, cheaper remittances, greater access to international capital, and integration into global financial markets. The Trump administration’s approach aims to capture this potential for U.S. firms, but without robust oversight, systemic risks rise sharply. 

In 2025, the European Central Bank and the Bank for International Settlements have similarly expressed concerns that stablecoins may undermine, not just financial stability, but monetary policy and the stability of widely accepted money.

Policy Pathways

Modern monetary systems rely on a balance between private creation and public trust. One way to preserve this hybrid model is through a central bank digital currency (CBDC), which could serve as a regulated “off-ramp” for stablecoin holders. Private issuers could circulate digital dollars while public confidence is guaranteed through central bank backing.

To safeguard the dollar’s financial and monetary integrity, U.S. policymakers should:

1. Require stablecoin issuers to operate within the banking perimeter, ensuring reserves are fully backed and subject to supervision.
    
2. Enhance international coordination, particularly with major central banks like the Bank of England and the ECB, to design resilient frameworks for cross-border digital payments.
    
3. Clarify the Federal Reserve’s role, reinforcing its capacity to act as lender of last resort in crises involving digital assets.

Conclusion

Stablecoins under Trump-era policy are more than a financial innovation. They are a lens into a political project to privatize the issuance of money. By signaling a permissive regulatory environment, the administration seeks to encourage firms to establish stablecoins and capture market share, potentially redefining the nature of money itself. While this strategy may attract innovation and maintain U.S. leadership in digital assets, regulatory frameworks could evolve over time to impose stronger safeguards, especially in response to systemic risks, lessons from the eurodollar system, or competitive pressures from other jurisdictions.

The debate over stablecoins is not merely about digital assets; it is about the future architecture of money, the credibility of the U.S. dollar, and the role of public oversight in safeguarding systemic stability. Policymakers ultimately face a choice: preserve money as a centralized public good while guiding innovation safely, or allow private issuance to reshape the global financial order with potentially destabilizing consequences.

George Gallwey is a geopolitical risk and intelligence analyst with deep experience across regulatory policy, OSINT, and international law. Former Bank of England and UK government analyst with a PhD from Harvard and advanced degrees from Oxford and Cambridge. I specialize in translating complex political and economic dynamics into actionable insight for financial institutions, corporates, and governments. Dual UK/US citizen with a global outlook and a track record of delivering high-stakes analysis at the intersection of finance, policy, and strategy.

Photo by D'Vaughn Bell