Dollar’s Dominance Falters Amid ‘De-dollarization,’ Trump Bets on Dollarization and Stablecoins

Central banks diversify away from the dollar toward euro and gold
U.S. Treasuries lose safe-haven appeal amid mounting uncertainty
Emerging economies turn to dollar-based stablecoins as an alternative

The Trump administration is reportedly considering a “Dollarization” policy to counter China-led de-dollarization, encouraging emerging economies to adopt the U.S. dollar instead of their own currencies. As the dollar’s standing as a safe-haven asset weakens and central banks shift reserves into alternatives such as gold, Washington is now taking steps to defend its reserve currency supremacy. The strategy involves leveraging dollar-based stablecoins as a new channel for expansion, fusing physical currency with digital financial networks to accelerate a “digital dollar hegemony.”

U.S. Officials Meet Dollarization Expert

According to the Financial Times (FT) on the 2nd (local time), officials from the U.S. Treasury Department and the White House are reviewing the adoption of a Dollarization policy. Dollarization refers to a policy that encourages emerging markets to use the U.S. dollar instead of their domestic currencies. Sources told the FT that U.S. officials held discussions this summer with Steve Hanke, a Johns Hopkins University professor and a leading authority on Dollarization, who has advised Ecuador and Montenegro on the design and implementation of such policies.

In an interview with the FT, Professor Hanke stated, “The U.S. administration is looking at Dollarization very seriously, though discussions are still ongoing and no final decision has been made.” He added, “This is tied to the broader expansion of dollar-based stablecoins.” Hanke reportedly met twice at the White House in August, with senior officials from the Council of Economic Advisers (CEA), the National Economic Council (NEC), and the National Security Council (NSC) attending the first meeting, and Treasury officials joining the second.

The discussion reflects President Donald Trump’s determination to preserve the dollar’s global standing amid concerns that its role as a safe-haven asset is waning. In a June survey conducted by the FT and the Kent A. Clark Center for Global Markets at the University of Chicago Booth School of Business, roughly 90% of 47 surveyed economists said they were somewhat or very concerned that dollar-denominated assets would lose their safe-haven role within the next five to ten years. Fewer than 10% said they were not concerned.

Europe and Asia Seek Independent Safe Assets

Confidence in the dollar as the world’s reserve currency has eroded. As of the end of 2024, the dollar accounted for 58% of global foreign exchange reserves held by the European Central Bank (ECB), down 10 percentage points from a decade earlier. In contrast, the euro’s share has risen to 20% over the same period. Notably, trust in central banks has also weakened. A May survey by the Official Monetary and Financial Institutions Forum (OMFIF) of 75 central banks found that 70% believed “U.S. political conditions negatively affect dollar investments”—more than double the figure from the previous year.

The safe-haven premium of U.S. Treasuries is also under threat. The stability of the Treasury market has been undermined by recurring shocks such as Trump’s tariff wars and domestic political turbulence, while debates over federal debt ceilings have further fueled volatility. Markus Brunnermeier, a professor at Princeton University, said, “As the dollar and U.S. Treasuries face challenges to their safe-asset role, Europe and Asia’s emerging economies will need to build their own safe assets.” He suggested that countries could “pool their debts under senior-junior structures to issue globally recognized safe assets.”

Meanwhile, central banks around the world are pivoting from the dollar to gold. Traditionally viewed as a hedge against inflation, geopolitical risk, and foreign-exchange volatility, gold is reasserting its position as a key store of value. According to OMFIF, one-third of surveyed central banks plan to increase their gold holdings within the next one to two years. Over a ten-year horizon, 40% intend to expand gold’s share of reserves—the highest level in five years—signaling a long-term strategy that goes beyond portfolio diversification.

Two-Thirds of Future Stablecoin Activity Expected in Emerging Markets

In response, the United States is doubling down on a “digital dollarization” strategy using stablecoins to reinforce its monetary dominance. According to a May report from the Bank for International Settlements (BIS) titled An Empirical Analysis of Cross-Border Bitcoin, Ethereum, and Stablecoin Flows, about 90% of USDT transactions between the first quarter of 2017 and the second quarter of last year occurred outside the United States. As of last month, USDT—the world’s largest stablecoin—had a market capitalization of $158.4 billion, with an estimated $142.5 billion in circulation globally in digital form.

Stablecoin use is surging in emerging economies plagued by high inflation, where collapsing local currencies are prompting people to turn to dollar-pegged digital assets for savings and transactions. While exchanging into physical dollars can take one to two days and incur steep conversion and intermediary fees, stablecoins enable instant 24-hour transfers with relatively low transaction costs.

Paolo Ardoino, CEO of USDT issuer Tether, emphasized, “In developing countries where governments and central banks have failed to curb inflation, dollar-based stablecoins have become a genuine lifeline for citizens.” He added, “Hundreds of millions of people use dollar stablecoins in their daily lives, and that number is growing rapidly. This expanding role of USDT will in turn reinforce the U.S. dollar’s global status.”

Global financial group Standard Chartered recently noted in a report that “stablecoins are driving deposit outflows in countries such as Egypt, Pakistan, Bangladesh, and Sri Lanka, where inflation and currency instability are severe.” The report added, “By offering households and businesses in developing countries an alternative to traditional banking systems, stablecoins are accelerating the post-crisis migration of core banking functions into non-bank sectors.” It forecast that “by 2028, two-thirds of global stablecoin activity will originate from emerging markets.”