The stablecoin race
Stablecoins have become the latest manifestation of geopolitical competition. Active—but conflicting—policy agendas in the United States, the European Union (EU), the United Kingdom (UK), and China all point toward intensifying international competition among leading and potential future reserve currencies. Each country’s agenda is motivated by questions about the sustainability of the dollar’s dominant global role.
The stablecoin race began in 2019 when Facebook proposed the stablecoin Libra (later re-named Diem). Central banks responded by developing central bank digital currencies (CBDCs) in order to remain relevant in the digital payment space. Private and public sector entities generally agree on the benefits of this transition; including increased efficiency and decreased costs for payments system, especially cross-border transactions. However, national policy preferences about digital payment mechanisms are diverging.
China and the EU are pursuing CBDCs issued on a unified ledger. China’s established government-issued CBDC (“e-CNY”) experiment has reached cumulative transactions of $7.3 trillion. However, the decision to formally adopt the e-CNY has yet to be made. China has not been shy about its intention to use the e-CNY as part of its geopolitical competition with the United States by expanding international use of the RMB.
European Central Bank (ECB) President Christine Lagarde has also promoted the digital euro to expand the international role of the euro. The ECB has just approved a plan to settle distributed ledger technology transactions using central bank money. However, legislative initiatives to authorize issuing a digital euro have stalled, in part because it is perceived as competing with bank deposits.
The UK supports wholesale CBDCs, viewing a digital pound as a natural evolution to current digital cash transfers among enterprises rather than as a geopolitical initiative. Unlike the ECB and the People’s Bank of China, the Bank of England is building an external programmable ledger that will be managed by external private sector third parties.
The United States opposes CBDC issuance, instead prioritizing dollar-based stablecoins issued by private sector entities. The outstanding amount of stablecoins exceeds $200 billion, dominated by two US companies: Tether and Circle. The vast majority of their stablecoins are pegged to the US dollar, effectively enhancing the efficiency and reducing the costs of current global payments. Maintaining the peg has propelled these stablecoin companies to become significant holders of short-term US Treasury securities; they are now the third-largest purchasers of US Treasury bills in 2024 (of almost $40 billion) after JPMorgan and China. The concentration of liquidity in dollar-based stablecoins paired with their portability on the blockchain and strict regulatory requirements in other jurisdictions create considerable barriers to privately issuing stablecoins backed by currencies other than the US dollar.
The growing global use of dollar-based stablecoins is worrying major central banks. They fear that increased dollar-based stablecoin usage will unleash currency substitution effects and drive digital dollarization. The ECB, for example, asserts that a digital euro is “crucial for bolstering European sovereignty” in order to ensure the effective transmission of monetary policy, decrease reliance on US based card payment platforms, and maintain the legal tender nature of the euro. In other words, the ECB increasingly sees itself as competing with privately issued stablecoins backed by the US dollar.
The evolving US regulatory framework for crypto assets
President Trump pledged during the 2024 election to make the United States “the crypto capital of the world.” Congress and federal regulators have quickly embraced the concept. Strong bipartisan support in the Senate resulted in the GENIUS Act passing in the Senate week after bring introduced. Additional market structure legislation is expected in the Senate during the summer. These two Senate bills, along with the CBDC Anti-Surveillance State Act (banning Federal Reserve issuance of a digital dollar without Congressional approval), will be up for vote in the House of Representatives during the week of July 14.
By taking up the Senate-passed versions of the stablecoin and crypto market structure bills, the House of Representatives leadership is signaling an intention to pass the Senate versions without changes. The move effectively scuttles initial House efforts to extend full banking regulation to stablecoins. However, the Senate bill incorporated the House prohibition on nonbank stablecoin issuers from paying interest on stablecoin holdings. The framework likely to pass Congress thus carves out a competitive niche for banks, enabling them to protect their deposit base by issuing their own stablecoins or by offering tokenized bank deposits, which could pay interest to deposit holders.
Proponents assert that the a federal framework for stablecoins will expand market growth to $2 trillion by 2030 and secure “dollar dominance” over the global financial system. Since stablecoins must be backed by dollar-based liquid assets, growth in the sector can be expected to increase demand for US Treasury securities.
Geopolitical implications
The prospect of quickly expanding the dollar-based stablecoin market after the Senate passed the GENIUS Act raised alarm bells, particularly in China and Europe.
In China, state-sponsored media responded to the Senate vote by calling for issuance of yuan-based stablecoins “sooner rather than later.” Beijing’s template could be Hong Kong’s May 2025 Stablecoins Ordinance. The rule permits stablecoin issuance referencing the HK dollar and other major currencies while enhancing stablecoin oversight and consumer protection.
EU reactions to the Senate vote were mixed. ECB President Lagarde’s testimony to the European Parliament after the vote characterized stablecoins as creating “risks for monetary policy and financial stability,” in part because they could interfere with the transmission of monetary policy. A recent European Parliament research report acknowledges the ECB’s domestic and geopolitical concerns about dollar-backed stablecoins but identifies a number of issues regarding the digital euro, including personal privacy and competition concerns. The Bank for International Settlements also recently validated objections to dollar-backed stablecoins based on financial stability and monetary sovereignty concerns, while adding technical architectural objections to reliance on distributed ledgers.
China and the EU are not alone. The Atlantic Council’s CBDC Tracker notes that as of July 2025, a record high number of governments (forty-nine) have launched formal CBDC pilots. Given heightened geopolitical tension, many of these countries might accelerate their CBDC projects and implement stablecoin oversight regulations in response to US stablecoin policy initiatives.
For example, leaks to the Financial Times indicate that the European Commission plans to recognize and regulate privately issued non-euro stablecoins, despite the de facto prohibition against such instruments in the Market in Crypto Asset Regulation (MiCAR).
However, CBDC initiatives face other hurdles besides competition with stablecoins—most notably, lackluster demand. European democracies have not yet secured legislative mandates to issue CBDCs. Tepid legislative support may reflect lacking public enthusiasm. However, CBDC test usage has increased in India and China.
Despite the increase in 2024, public acceptance of the e-CNY has been low. Demand remains strong for the e-CNY’s competition. Familiar mobile payment platforms (Alipay, WeChat Pay) constitute 90 percent of mobile payments (2.5 billion users), which in turn account for 73 percent of domestic payments. This dynamic may concern Europe, whose digital euro is expected to compete with US-based card payment companies.
In Jamaica, the IMF reports that the domestic CBDC only accounts for 0.1 percent of cash in circulation. Its deployment was relatively modest, with payments limited to government fees, taxes, and traffic tickets. Recent public surveys in the UK and the EU indicate limited awareness of, and lukewarm public support for, the digital pound and the digital euro respectively.
Ultimately, rapid US stablecoin policy formulation will trigger predictable global reactions. Many central bankers, especially in China and Europe, have increasingly vocalized their opposition to extending the dollar’s global role into the digital arena through privately issued stablecoins. However, their capacity to use CBDCs to compete with dollar-based stablecoins requires faster action and stronger political support than what have been seen so far. The United States retains the advantage in this new arena of geopolitical competition—for now.
Hung Tran is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center and senior fellow at the Policy Center for the New South; and a former senior official at the Institute of International Finance and International Monetary Fund.
Barbara C. Matthews is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center. She has had the honor to serve as the first US Treasury Attache to the EU in Brussels and as Senior Counsel to the House Financial Services Committee. Currently, she is the Founder and CEO of BCMstrategy, Inc., a company that generates AI training data and signals regarding public policy.
At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.
Further reading
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