Stablecoins Cement US Dollar Dominance, Bank of England Official Warns
Carolyn Wilkins highlights how digital assets expand dollar access while introducing systemic risks to the US Treasury market.
The proliferation of dollar-denominated stablecoins may be reinforcing the global dominance of the US dollar, according to a senior official at the Bank of England. Carolyn Wilkins, a member of the Financial Policy Committee, warned that while these assets streamline cross-border settlements, they create a systemic link between crypto markets and sovereign debt.
Speaking at Queen’s University Belfast, Wilkins noted that the US dollar currently enjoys a "considerable first-mover advantage" in the stablecoin sector. This dominance is reflected in the data: dollar-denominated stablecoins now account for approximately 98% of the total stablecoin market value. With the total stablecoin market capitalization having exceeded $300 billion, the scale of these assets has turned them into significant players in traditional finance.
The Treasury Connection
The growth of these digital assets is inextricably linked to the US Treasury market. Stablecoin issuers use government debt as primary reserves to back their tokens, effectively turning crypto demand into demand for US sovereign debt. By the end of 2025, Tether alone held over $120 billion in US Treasury bills, with combined holdings from Tether and Circle reaching significantly higher levels.
This relationship provides a steady stream of buyers for US government debt, but Wilkins cautioned that it introduces a new risk vector. In the event of a crypto-market panic, mass redemptions of stablecoins could force issuers to liquidate their Treasury holdings rapidly. Such large-scale selling could increase volatility in the US Treasury market, potentially impacting broader global financial stability.
Global Competition and Outlook
As the US dollar leverages this digital advantage, other economies are attempting to close the gap. In the UK, the Financial Conduct Authority finalized rules for stablecoin issuance in June. Simultaneously, the Bank of England has been testing the interoperability of a simulated digital pound with stablecoins to facilitate more efficient cross-border trade.
What remains to be seen is how regulators will mitigate the risk of "digital bank runs" that could spill over into the sovereign debt markets. While stablecoins expand the reach of the dollar into new digital frontiers, the potential for sudden, large-scale liquidations remains a primary concern for central bankers monitoring the intersection of decentralized finance and traditional government bonds.