Assessing the Influence of Stablecoin Adoption on Dollar Dominance from Cross-Country and Monetary Data

Abstract

Stablecoins are cryptocurrencies directly pegged to the value of a fiat currency and are primarily traded in cryptocurrency markets. Over time, their use has expanded from crypto trading to cross-border payments. The most notable stablecoin pegs are to the US dollar, which has become increasingly popular over the last half-decade as a medium of exchange among international investors. As stablecoins have impacted dollarization and influence how the dollar is used, especially in emerging markets, it raises questions about how they can affect macroeconomic variables that reflect how we currently use dollars. In this study, we measure how the relationship between 10-year government bond yields, treasury and debt holdings, M1 and M2, and debt issuance has changed as stablecoin usage grew across 28 countries. The regressions look to find possible substitution effects between stablecoins and traditional dollars, controlling for GDP growth, inflation expectations, country fixed effects, and stock market volatility. We use Allium to link Treasury International Capital (TIC) data to stablecoin data to measure stablecoin usage by country, and World Bank, IMF, and Trading Economics to find dollar data.