This week, the House of Representatives is set to vote on the GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins Act), which passed in the Senate last month. If signed into law, GENIUS will create the first comprehensive federal framework for payment stablecoins. Advocates in Congress and the crypto industry offer a range of justifications for this legislation, but the most persistent—and misleading—is that regulating stablecoins will preserve the dollar’s dominance as the world’s reserve currency.
This argument has been repeated so often that its proponents feel no need to explain it. Consider:
Rep. Bryan Steil (R-WI): “This legislation is a foundational step towards securing the future of financial payments in the United States and solidifying the dollar’s continued dominance as a world reserve currency.”
U.S. Treasury Secretary Scott Bessent: “As President Trump has directed, we are going to keep the U.S. the dominant reserve currency in the world, and we will use stablecoins to do that.”
Rep. French Hill (R-AR): “I think that a dollar-backed payment stablecoin extends the brand of the dollar. It extends the power of the dollar as the reserve currency…”
Jeremy Allaire (CEO, Circle): “If the dollar is to remain the world’s reserve currency, if America is to lead the world economy for the next ten years and beyond, then we need to build trust in digital dollars and regulate stablecoins today.”
These talking points amount to little more than techno-utopian soundbites—designed to appeal to policymakers and voters who may not fully grasp the mechanics of global finance. After all, invoking the preservation of “dollar dominance” is an easy way to make a complex bill sound patriotic and forward-looking. But beneath the rhetoric lies a fundamental—and perhaps willful—misunderstanding of what actually confers reserve currency status.
A Reserve Currency
A reserve currency is a foreign currency that central banks or finance ministries hold in official reserves, typically in the form of government securities or deposits. The relevant question, then, is whether the GENIUS Act will lead to more Treasuries or dollar deposits being held by foreign central banks. The answer is no.
Given the definition above, it is clear that a regulatory framework like GENIUS will have no impact on the reserve holdings of foreign central banks stemming from U.S.-based stablecoin issuers. Circle, for example, holds approximately 90% of the reserves backing USDC in a BlackRock-managed money market fund created specifically for Circle. Regardless of how USDC is regulated, these reserves are not, and will not be, held by foreign central banks.
Since USDT—issued by El Salvador-based Tether—makes up roughly 62% of the total stablecoin market cap, the more relevant question is whether GENIUS would compel Tether to purchase more U.S. Treasuries, and whether that could somehow result in greater Treasury holdings by foreign central banks. The likely answer is no. Even if Tether adjusts its reserve composition to comply with GENIUS, this shift would not translate into foreign central banks holding more Treasuries.
Tether has long faced scrutiny over the composition of its reserves and has been the subject of enforcement actions by U.S. regulators for misleading customers about the nature and quality of those reserves. The company has never undergone a full independent audit. While Tether does publish quarterly attestation reports, its most recent report, from the end of March, indicates that approximately $122 billion of its $149 billion in reserves are held in U.S. Treasuries, repurchase agreements, money market funds, short-term deposits, and non-U.S. sovereign debt. The remaining assets—including precious metals, Bitcoin, and secured loans—would not qualify as permissible reserves under the GENIUS Act. To comply, Tether would need to convert roughly $22 billion of its holdings into U.S. dollar cash and cash equivalents like Treasuries. Yet even if it does so, these assets will continue to be custodied by U.S.-based Cantor Fitzgerald, Tether’s primary Treasury custodian. Full compliance would also require Tether to register with U.S. regulators, unless it operates under a foreign regulatory regime deemed “comparable”—a status that is neither guaranteed nor clearly defined. Perhaps not coincidentally, Tether’s CEO has floated the idea of launching a “separate, locally issued stablecoin,” suggesting the company is already planning for a regulatory workaround.
If Tether and other stablecoin issuers are required to purchase more U.S. Treasuries to comply with GENIUS, that demand could be offset by foreign central banks reducing their own Treasury holdings. In that scenario, the net effect could be a decline—not an increase—in the share of Treasuries held as official reserves. In short, a stablecoin bill like GENIUS has no bearing on the volume of dollar assets held by foreign central banks, and therefore no impact on the dollar’s status as a global reserve currency.
Dollar Dominance
What about the claim that a clear U.S. regulatory framework for stablecoins will preserve or promote “dollar dominance”? Stablecoin advocates often invoke this phrase, but rarely define what they mean. If the suggestion is that more people around the world will use dollars for transactions, the argument quickly falls apart. The U.S. dollar is already the default currency in most crypto and stablecoin transactions. Roughly 98% of all stablecoins are pegged to the dollar—despite the absence of a federal regulatory framework in the U.S. In fact, the current regulatory ambiguity may have contributed to this dominance: bad actors are drawn to dollar-denominated stablecoins precisely because they offer access to synthetic dollars without requiring identification or regulatory oversight. Ironically, by imposing stricter requirements, GENIUS could actually diminish dollar dominance if it drives stablecoin users and issuers toward non-USD alternatives that remain unregulated or offshore.
Perhaps proponents of GENIUS believe that establishing a federal regulatory framework will increase the overall volume of stablecoin transactions, thereby boosting the number of dollar-denominated transactions. But given that stablecoins have already been widely accessible for years, there’s little reason to think regulation alone will drive a significant uptick in usage. And even if dollar-pegged stablecoins are used more frequently, that growth would likely cannibalize existing dollar instruments—such as bank deposits or remittances—rather than expand the overall footprint of the dollar.
Dollar Doomerism
The scare tactics used to promote the GENIUS Act are just the latest iteration of dollar “doomerism,” a recurring narrative that has persisted since the dollar became the world’s dominant currency after World War II. In his excellent new book King Dollar, Paul Blustein offers a comprehensive account of why the dollar emerged as the global anchor following the Bretton Woods agreement in 1944—and why it has remained dominant despite repeated predictions of its decline. In a chapter aptly titled “Pretenders to the Throne,” Blustein documents several major episodes when observers wrongly forecasted the dollar’s demise.
When Japan emerged as an economic and manufacturing powerhouse in the 1970s and 1980s, many believed the yen was poised to overtake the dollar in international trade. But Japanese officials prioritized maintaining a weak yen to support export-driven growth, preserving strict capital controls and low interest rates well into the 1990s. By the time the Japanese stock and property bubbles burst, the window for the yen to challenge the dollar had firmly closed—and so did the speculation about its reserve currency potential.
Next came the rise of the euro around 2000. In its first decade, the euro climbed to the number two position globally, “comprising 25 percent of the foreign exchange reserves held by the world’s central banks, versus about 65% for the dollar.” This led some academics, writing in a 2008 report for the European Commission, to conclude: “The euro’s first decade has been marked by incremental, yet noticeable, steps toward becoming an equal to the dollar as an international currency.” But then came the eurozone debt crisis—and with it, a harsh realization: the absence of a unified sovereign behind the euro significantly undermined its viability as a true reserve currency.
More recently, the Chinese renminbi has been cast as a challenger to the dollar’s throne. Stablecoin advocates often claim that the U.S. needs a federal regulatory framework for stablecoins to remain competitive with China—especially now that China has launched its own central bank digital currency (CBDC). But the renminbi’s global prospects dimmed after Xi Jinping came to power in 2012 and began tightening state control over the private sector. As Blustein notes, the erosion of rule of law in China “undercuts investors’ confidence that property rights will be protected, contracts enforced, and impartial judgments rendered if their assets are subject to dispute.” That is hardly a formula for a viable reserve currency. Blustein also dismantles the notion that China’s CBDC, the e-CNY, poses a threat to the dollar, citing data showing minimal adoption by consumers and businesses. For most Chinese citizens, the e-CNY offers no real improvement over existing payment systems—and comes with the added downside of heightened government surveillance.
Finally, in the aftermath of the Global Financial Crisis—triggered in large part by excessive speculation on housing-related assets in the U.S.—many foreign policymakers renewed calls for an alternative international reserve currency. Their aim was to insulate the global economy from what they saw as the instability and excesses of American capitalism. In a widely cited 2009 essay, Zhou Xiaochuan, then Governor of the People’s Bank of China, argued that the crisis and its global spillovers “reflect the inherent vulnerabilities and systemic risks in the existing international monetary system,” and advocated for a new reserve currency “disconnected from economic conditions and sovereign interests of any single country.” Similarly, ahead of the G20 summit in November 2008, French President Nicolas Sarkozy declared, “I am leaving tomorrow for Washington to explain that the dollar, which after the Second World War was the only currency in the world, can no longer claim to be the only currency in the world.” And yet, despite these high-profile critiques, the dollar’s dominance has endured.
Essential Ingredients for a Reserve Currency
If none of these major historical developments dented the dollar’s role as the world’s reserve currency, then the absence of a federal regulatory framework for stablecoins in the U.S. is hardly a meaningful threat. That said, the dollar’s dominance should not be viewed as permanently secure. In a 2021 speech on central bank digital currencies, Randal Quarles—then Vice Chair for Supervision at the Federal Reserve—outlined the core factors underpinning the dollar’s preeminence. He explained:
“The dollar’s role in the global economy rests on a number of foundations, including the strength and size of the U.S. economy; extensive trade linkages between the United States and the rest of the world; deep financial markets, including for U.S. Treasury securities; the stable value of the dollar over time; the ease of converting U.S. dollars into foreign currencies; the rule of law and strong property rights in the United States; and last but not least, credible U.S. monetary policy. None of these are likely to be threatened by a foreign currency, and certainly not because that foreign currency is a CBDC.”
Unfortunately, many of these foundations are now under pressure. President Trump’s erratic trade policies—including on-again, off-again tariffs—and his public threats to dismiss Federal Reserve Chair Jerome Powell pose a far greater risk to dollar dominance than the lack of a stablecoin law. Equally concerning are the ballooning federal deficits, fueled in part by the recently passed “Big Beautiful Bill,” which further undermine confidence in the long-term stability of U.S. fiscal policy. Yet advocates of a stablecoin bill have been conspicuously silent on these far more credible threats to the dollar’s global role.
Costs and Benefits of Being The Reserve Currency
Stablecoin proponents frequently assert that a federal stablecoin law will bolster the dollar’s reserve currency status, but they rarely explain why that’s desirable—or why the average American should care. In a 2016 blog post on the dollar’s international role, former Federal Reserve Chair Ben Bernanke questioned the practical benefits of the dollar’s dominance. He wrote that “the benefits of the dollar’s status to the United States have been much reduced in recent decades,” noting that “the interest rates that the U.S. pays on safe assets, such as government debt, are generally no lower (and are currently higher) than those paid by other creditworthy industrial countries.” Bernanke acknowledged that a large volume of U.S. currency is held abroad, which amounts to an interest-free loan to the U.S., but he estimated the resulting savings at only around $20 billion per year—a trivial amount relative to GDP. He further argued that this “seigniorage” would likely persist even if the dollar lost ground in formal international transactions. As for U.S. firms, he noted they may face slightly less exchange-rate risk, but downplayed the significance: “that benefit should not be overstated since the dollar floats against the currencies of most of our largest trading partners.” In fact, Bernanke pointed out that the dollar’s “safe haven” status can be a liability for American exporters, since it strengthens the currency precisely when global economic conditions are weakest—making U.S. goods less competitive abroad.
If the direct economic benefits of the dollar’s reserve currency status are minimal—or even negative—for most Americans, then why should policymakers care about preserving it? As Paul Blustein explains, the real value lies in the geopolitical leverage it affords. Because so much global trade and finance is denominated in dollars and processed through U.S. financial institutions, the U.S. government can unilaterally deny foreign actors—from individuals to entire regimes—access to the global financial system. This makes dollar-based sanctions uniquely potent, allowing Washington to influence international behavior and punish adversaries without resorting to military force. The dollar’s centrality also compels foreign banks and businesses to comply with U.S. sanctions, even when their own governments do not, further extending American influence. In this way, maintaining the dollar’s dominance offers U.S. policymakers a powerful and relatively low-cost instrument of foreign policy.
However, the rise of dollar-denominated stablecoins—especially those issued and transacted outside of the traditional banking system—threatens to undermine this source of U.S. geopolitical power. While these stablecoins are often pegged to the dollar, they can operate independently of U.S.-regulated financial institutions and the correspondent banking network, meaning they may fall outside the jurisdictional reach of U.S. sanctions enforcement. If large volumes of global transactions begin to flow through stablecoins on decentralized networks, sanctioned entities could potentially access dollar-like instruments without ever touching the U.S. financial system. This would erode the U.S. government’s ability to detect, deter, and punish illicit activity, weakening the leverage that comes from the dollar’s gatekeeping role in global finance. In effect, widespread adoption of stablecoins—especially if they are poorly regulated or issued offshore—could replicate many of the benefits of the dollar without preserving the mechanisms that give the U.S. its foreign policy clout.
In its latest update on the global implementation of anti-money laundering and counter-terrorist financing (AML/CFT) measures for virtual assets (VAs) and virtual asset service providers (VASPs), the Financial Action Task Force (FATF)—an independent intergovernmental body that develops and promotes policies to protect the global financial system from money laundering, terrorist financing, and the financing of weapons of mass destruction—issued a stark warning about the growing use of stablecoins by illicit actors. The following excerpt from FATF’s section on stablecoins highlights the scale and severity of the problem:
“The use of stablecoins by various illicit actors, including DPRK actors, terrorist financiers, and drug traffickers, has continued to increase since the 2024 Targeted Update. Estimates suggest that a majority of all on-chain illicit activity is now transacted in stablecoins. This increase aligns with the broader trend of stablecoin adoption by VA users across various jurisdictions, with the one industry estimate reporting over $30 trillion in stablecoin volume growth between May 2024-2025.11 As highlighted previously, the perceived reduction in volatility, transaction efficiency with low costs, and abundant liquidity in the market that make stablecoins attractive to many consumers and businesses also draw in criminals seeking to maximise profits and reduce their costs. The increased use of stablecoins is indicative of their potential for mass adoption. As stated in previous Targeted Updates, mass adoption of stablecoins could potentially decrease the use of AML/CFT-obliged entities as stablecoins stored in unhosted wallets could potentially be used to purchase goods without being converted into fiat currency. Mass adoption of stablecoins or VAs more broadly could amplify illicit finance risks, particularly with uneven implementation of the FATF Standards for VAs/VASPs. Private sector participants noted the use of the stablecoin USDT on the Tron network by illicit actors to move funds quickly, potentially attributable to the ability to quickly and cheaply transfer funds through this method. In addition, criminals may pair stablecoins with anonymity-enhancing tools and methods, like the use mixers, bridges and cross-chain transactions. Private sector participants also reported the use of stablecoins to layering funds, using dormant accounts and transactions depositing and withdrawing stablecoins at a VASP without trading activity.”
Stablecoin proponents often counter concerns about illicit finance by pointing out that issuers have the ability to freeze blockchain addresses linked to criminal activity and routinely cooperate with law enforcement. While true, this capability is inherently reactive—it depends on detecting illicit behavior after the fact and intervening in time. In practice, much of the stablecoin activity exploited by criminals takes place on decentralized platforms, via unhosted wallets, and through cross-chain bridges—areas where issuer-level controls are limited or nonexistent. Compounding the challenge, bad actors can generate an unlimited number of wallet addresses (key pairs) at no cost, making it easy to bypass blacklisted addresses and resume activity undetected. In short, a federal regulatory framework that accelerates stablecoin adoption without fully addressing these structural enforcement gaps risks undermining one of the most strategically valuable aspects of the dollar’s reserve currency status: the ability to enforce sanctions compliance through control of the financial system.
Conclusion
There may be other reasons to support a federal stablecoin bill—proponents frequently point to innovation, consumer protection, and market certainty—but those arguments come with their own set of complexities and tradeoffs, which others have thoroughly examined. In this post, I’ve focused narrowly on one particularly pervasive claim: that regulating stablecoins is necessary to preserve the dollar’s reserve currency status. This argument has gained remarkable traction in political and industry circles, despite being based on a deeply flawed understanding of what makes a currency dominant in the first place. While the future of stablecoin regulation deserves serious discussion, that conversation should begin with clarity—not mythology—about what is actually at stake.
Lee Reiners is a lecturing fellow at Duke University. This post reflects his personal views and his alone.
Finally, someone who has plainly and expertly refuted the nonsense coming from the bought-and-paid-for Congressmen who have fallen for the crypto industry’s “responsible innovation” and “dollar dominance” dog whistles. Much appreciated, Professor Reiners et al!