Digital Currencies and Monetary Hegemony, Part III of III: Dollar Hegemony and Digital Currencies

4. Stablecoins: International Cooperation and Fundamental Concerns

4.1 International Cooperation on Stablecoins

Part II examined the institutional frameworks and market players surrounding stablecoins, mainly in Japan and the United States. Broader international cooperation is now also emerging. On October 10, 2025, 10 banks from Japan, the United States and Europe announced that they were considering jointly issuing stablecoins. The participating banks are MUFG Bank, Bank of America, Citigroup, Goldman Sachs, Barclays, Deutsche Bank, UBS, BNP Paribas, Santander and TD Bank. The press release stated only abstractly that the initiative would explore whether industrywide cooperation could benefit digital assets. Still, it likely marks the beginning of more concrete examination and future alignments.

JPMorgan Chase, which is not part of the group of 10, has issued JPM Coin since 2019. JPM Coin is a tokenized deposit backed by U.S. dollar deposits and is used for corporate cross-border remittances at a one-to-one value with the dollar. It is limited to JPMorgan Chase clients, but according to Professor Masashi Nakajima of Reitaku University, it is the most successful stablecoin for cross-border remittances.

4.2 Evaluating BIS Concerns over Stablecoins

Stablecoins appear to be useful instruments for remittances and payments because they rely on private-sector innovation while removing the extreme volatility associated with crypto assets such as Bitcoin. But how should stablecoins be evaluated against the essential qualities that money must possess?

The BIS Annual Economic Report, published on June 24, 2025, examined this issue in depth. It argued that money must satisfy three conditions: singleness, elasticity and integrity. It contends that stablecoins do not adequately meet these requirements.

First, singleness means that stablecoins should maintain their face value without discount. For example, both USDT and USDC are premised on the idea that one unit equals one U.S. dollar. However, because neither USDT nor USDC is a central bank liability, if market participants judge that Tether lacks the creditworthiness to redeem one USDT for one dollar, one USDT may trade at a discount, such as 99.7 cents. If USDC continues to trade at one dollar, the value of USDT and USDC will diverge according to issuer credibility, undermining singleness.

Theoretically, one could invoke F.A. Hayek’s argument for the denationalization of money: because state monopolies over money can produce inflation, private issuers competing in the market might better stabilize currency value. Yet history is sobering. During the so-called free banking era of the 19th century, state-chartered banks in the United States issued their own banknotes in excessive quantities, triggering repeated bank runs and severe financial instability. The Federal Reserve, established in 1913, emerged in response to such problems. Stablecoins may preserve singleness if issuers reliably hold sufficient reserve assets. But users must verify the quality of those reserves, creating due diligence costs. From this perspective, the BIS argues that stablecoins have an inherent weakness as money.

Seocnd, elasticity refers to the capacity to respond flexibly to large transactions. In the current financial system, centered on central banks, liquidity can be supplied immediately when large settlements exceed the funds available through private bank deposits. In the case of stablecoins, however, supply can only increase when reserve assets are accumulated. The BIS therefore questions whether stablecoins can provide sufficient elasticity.

Third, integrity concerns anti-money laundering and counterterrorist financing controls. Even if AML and CTF regulations are applied, the BIS suggests that enforcement in stablecoin systems may be less effective than in traditional finance. Distributed transactions using blockchain are associated with anonymity, and the potential risk that stablecoins will be used for illegal transfers and payments may be higher than in conventional finance.

The BIS does not claim that the current payment and settlement system is perfect. It agrees that major improvements are needed. However, it argues that these should be pursued through improvements to existing systems, including tokenization, rather than by promoting stablecoins whose fulfillment of the three aforementioned conditions is uncertain. This argument is valuable as a warning against simplistic libertarian market fundamentalism when discussing financial and payment systems with strong externalities and public-interest dimensions.

At the same time, the BIS appears to give insufficient consideration to the possibility that regulatory frameworks and supervisory oversight could substantially reduce these risks. An open-minded approach that explores the potential of stablecoins under sufficient regulation and supervision is necessary if payment and settlement systems are to benefit from digitalization.

The most serious concern regarding stablecoins may be their impact on government bonds used as reserve assets. As stablecoin issuance increases, demand for government bonds is likely to rise. This is favorable from the perspective of stable government bond absorption and low-cost fiscal financing. It is also why Sen. Bill Hagerty, a sponsor of the GENIUS Act, explicitly described increasing demand for U.S. Treasuries as one of the law’s benefits.

But what happens if redemption requests surge? Suppose holders become concerned about the quality of reserve assets held by Company A, a major stablecoin issuer. Redemption requests spread through social media and snowball. Since a large portion of reserve assets would likely be government bonds, Company A would sell bonds in the market to obtain cash for redemptions. Bond prices would fall and interest rates would rise. Such risks should be carefully considered in institutional design. Mechanisms such as deposit insurance or central bank liquidity provision may deserve examination, while taking into account costs and moral hazards.

At the same time, these risks should not be overstated. Ordinary private banks operate under fractional reserve banking, lending out most deposits and keeping only a portion as reserves. Stablecoin issuers, by contrast, are legally required to maintain full reserves equivalent to the amount issued. In that sense, they should be less prone to runs than ordinary private banks. To preserve this inherent robustness, strict supervision of reserve assets and frequent disclosure are essential.

5. Multilateral Remittance Initiatives

One reason digital currencies attract attention is their potential to improve the efficiency of payments and settlement. Dissatisfaction is especially strong with current cross-border remittances, which are costly and slow. There is considerable expectation that digital currencies could solve this problem.

Building cross-border payment systems requires multilateral coordination. Such coordination may have geoeconomic and monetary-hegemonic implications depending on the participants and the leader of each initiative. Against this backdrop, two major multilateral initiatives deserve attention.

5.1 mBridge

mBridge originated in a joint project between the Hong Kong Monetary Authority and the Bank of Thailand. In 2019, they developed a prototype cross-border corridor network. In 2021, the People’s Bank of China (PBOC) and the Central Bank of the United Arab Emirates joined. Research on multilateral cross-border payments advanced, and a pilot involving commercial banks was conducted in summer 2022. The Saudi Central Bank joined in 2024.

mBridge has a two-tier structure. The first tier consists of domestic wholesale CBDC networks between central banks and commercial banks, and the second is an offshore corridor network called the mBridge network, which uses distributed ledger technology.

There is little doubt that the PBOC is central to mBridge. China has led preparations for CBDCs, and bridging different CBDCs through the mBridge network could improve payment efficiency and speed. It would also have major geoeconomic benefits by freeing transactions from U.S. oversight and intervention associated with dollar settlements.

Russia, suffering from Western financial sanctions, appears to have sought discussion at the October 2024 BRICS summit on the early launch of a BRICS Bridge based on mBridge technology, allowing BRICS countries to conduct remittances and settlement without exposure to U.S. sanctions. However, there is no confirmed information that this was seriously discussed or produced a positive conclusion at the summit. Given the likely U.S. backlash if the initiative was seen as attempt at evading sanctions, BRICS members may not have been united.

On October 31, 2024, the BIS, which had supported mBridge as coordinator, announced its withdrawal. BIS General Manager Agustín Carstens explained that the decision was not due to failure or political considerations, but because after four years of involvement the partners had reached a level at which they could operate the project themselves. The BIS has repeatedly emphasized that its activities, including mBridge, are not intended to facilitate sanctions evasion. Still, it cannot be ruled out that Russia’s push for a system free from U.S. sanctions made continued BIS involvement politically difficult.

5.2 Project Agorá

Western countries are also studying international platforms using distributed ledger technology. Project Agorá is an international experimental project involving central banks from seven jurisdictions — Japan, the United States, the United Kingdom, France (via the E.U.), South Korea, Mexico and Switzerland — together with multiple private financial institutions, for a total of nearly 50 institutions.

The project seeks to build a common distributed ledger platform on which seven central bank deposit accounts and roughly 40 private financial institution deposit accounts can be placed, enabling 24-hour cross-border payments involving currency exchange. Bank deposits whose rights are transferred on a platform using distributed technology are called tokenized deposits, and they are notable for being programmable.

The Bank of Japan emphasizes that Project Agorá was launched to test the validity of the “unified ledger” concept. Even so, given mBridge and the possible construction of new payment systems by BRICS and others, it is difficult to say that geoeconomic considerations are entirely absent.

6. Monetary Hegemony and Digital Currencies

6.1 Dollar Hegemony

The dollar remains the world’s reserve currency. Its share of global reserves has declined by more than 10 percentage points from its peak, but it still stands close to 60 percent. The euro is second at around 20 percent, while the accounts for only about 2 percent. In foreign exchange market turnover, the dollar’s share is 89 percent, far ahead of the euro at 29 percent, the Japanese yen at 17 percent, the pound at 10 percent and the renminbi at 9 percent. In economic size, China has risen to 17 percent of the global economy, but the United States remains first at 26 percent. Given the strong inertia that characterizes reserve currencies, the dollar’s position appears secure for now.

The euro and renminbi are potential challengers. The euro succeeded as a monetary union, but its weakness remains the lack of fiscal integration. There are signs of partial fiscal integration, such as joint European bond issuance, but such moves remain limited.

For the renminbi, the greatest obstacle is the authorities’ willingness to internationalize it. There has been some progress, including expanded offshore renminbi use and inclusion in the International Monetary Fund’s Special Drawing Rights basket in 2016. However, China’s authorities have not sufficiently liberalized the currency to make it truly free and easy to use, including onshore. In terms of Robert Mundell’s international finance trilemma, China prioritizes exchange rate stability and monetary policy autonomy, often limiting capital mobility. The 2015 renminbi shock, when outbound remittances from China were restricted even for foreign firms, remains a vivid example. Deeper concerns about China’s state system, transparency and rule of law are also likely to hinder the renminbi’s prospects as a reserve currency.

6.2 A Secure Dollar — For Now. But “Gradually, then Suddenly”?

The dollar’s reserve currency status is likely to remain secure for the foreseeable future. What requires attention is not the emergence of a new currency that fully replaces the dollar, but the gradual effort by countries to reduce the dollar’s share in specific transactions, including trade, remittances and foreign reserves.

Because the dollar is the reserve currency, the United States not only enjoys the “exorbitant privilege” of low-cost external borrowing but also gains major geoeconomic advantages by weaponizing the dollar through financial sanctions. Russia, after invading Ukraine, faced severe sanctions including exclusion from SWIFT (Society for Worldwide Interbank Financial Telecommunication) and the freezing of foreign assets. Russia’s interest in BRICS Bridge and other non-dollar payment networks does not stem from a desire to seize the reserve currency crown from the dollar. Rather, it reflects a desire to reduce the scope of exposure to U.S. weaponization of finance. China has similar incentives. It has reduced the dollar’s share in trade settlement from around 80 percent to roughly half, increased renminbi settlement, and lowered the dollar share of its foreign reserves while increasing other currencies and gold. Since 2018, renminbi-denominated crude oil futures have traded on the Shanghai International Energy Exchange, and reports have suggested consideration of renminbi-denominated oil transactions with Saudi Arabia.

The PBOC began building the Cross-Border Interbank Payment System (CIPS) in 2012 to improve the efficiency of cross-border renminbi settlement. Phase 1 became operational in October 2015, with 19 direct participating banks and 176 indirect participants across 50 countries and regions. Initially, CIPS was a settlement system that mainly used SWIFT for financial messaging, so it was not accurate to describe it as a replacement for SWIFT. However, CIPS allows direct participants to send proprietary financial messages without relying on SWIFT. Phase 2 began operating in March 2018, and direct participants increased from 19 to 193 by 2025. Benn Steil of the Council on Foreign Relations has argued that the decline in the renminbi’s share of SWIFT between 2024 and 2025 likely reflected a shift in renminbi-related financial messaging from SWIFT to CIPS-specific systems, rather than a decline in renminbi remittances overall. CIPS is helping expand a world less dominated by SWIFT.

The European Union, part of the Western camp, has also become more conscious of strategic autonomy in the face of the second Trump administration’s unilateral tariff measures and threats over Greenland. This awareness likely supports the push for the digital euro.

The dollar’s reserve currency position is likely to remain secure for now. Yet countries uneasy about the status quo, including the weaponization of the dollar, will gradually expand the use of non-dollar currencies. One cannot entirely rule out the possibility that “gradually” could one day reach a tipping point and become “gradually, then suddenly,” to borrow the phrase from Ernest Hemingway’s The Sun Also Rises.

6.3 The greatest enemy is itself

In his 2025 book King Dollar, journalist and economic writer Paul Blustein argues that dollar hegemony will continue. Yet he carefully qualifies this claim: it will continue unless the U.S. government commits catastrophic policy errors. He also notes that respect for the rule of law is essential for a currency to be accepted as a reserve currency.

Since returning to the White House in 2025, President Trump has unilaterally imposed tariffs in ways that violate WTO rules and bilateral agreements, argued that the United States should own Greenland, pressured the Federal Reserve’s monetary policy, violated Venezuelan sovereignty by detaining and removing Nicolás Maduro, alongside Israel carried out strikes on Iran that likely violated international law, and personally profited from crypto assets such as Trump Coin. These actions are difficult to describe as conducive to sustaining dollar hegemony.

Whether they amount to the kind of catastrophic U.S. policy failure that could force the dollar from its throne remains unclear. Moreover, U.S. institutions retain considerable resilience. The Supreme Court ruled Trump’s reciprocal tariffs illegal, and the Federal Reserve’s Federal Open Market Committee has shown that it does not necessarily follow the president’s wishes. Given institutional resilience, the inertia of reserve currency status and the absence of a viable alternative currency, it is reasonable to expect dollar hegemony to continue for a considerable time.

Still, even if the dollar remains the reserve currency, other currencies such as the renminbi may be used increasingly in trade transactions. It is hard to deny that the Trump administration’s policy failures could reinforce this trend. If Trump’s digital currency policy, influenced by crypto industry donations and related interests, neglects financial stability and excessively favors industry interests, the digital dollar could ultimately narrow rather than expand the scope of dollar hegemony.

6.4 Conclusion

Discussions of digital currency necessarily involve technical questions. Without technical feasibility, implementation is impossible, and debates over technological validity are essential. Economic rationality and effects on the financial system as a whole must also be fully considered. At the same time, the geoeconomic effects of digital currencies in real-world international politics cannot be ignored.

China continues to promote the digital yuan, even after modifying its original CBDC approach, and is exploring wholesale non-dollar settlement networks including mBridge. Europe, wary of domination by U.S. platform companies, is advancing institutional design and testing with the aim of introducing a CBDC-style digital euro in 2029. The United States, having experienced a major ideological shift with a change in administration, is promoting stablecoins by leveraging the dynamism of the private sector in order to strengthen the current reserve currency power of the dollar.

The expansion of dollar stablecoins could promote dollarization in developing countries that lack trusted currencies. Dollarization without the proactive choice of local governments could threaten monetary sovereignty.

CBDCs, stablecoins and tokenized deposits are all promising forms of digital currency. Different countries are adopting different instruments. Competition and coexistence among countries will unfold, while competition among currencies will proceed alongside plurilateral and multilateral cooperation to facilitate cross-border transactions.

The resulting fabric of money — woven from technology, economics and geoeconomics — remains difficult to discern. Japan, too, must examine these developments proactively from a broad strategic perspective.

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Disclaimer: The views expressed in this IOG Commentary do not necessarily reflect those of the API, the Institute of Geoeconomics (IOG) or any other organizations to which the author belongs.