The Future of the Dollar: Stablecoins and Geopolitics

Abstract

Since the Bretton Woods Conference in 1944, the U.S. dollar has been the dominant global currency, facilitating international trade, cross-border payments, and reserve holdings. Although its influence remains significant, its future trajectory remains uncertain. Using data from the U.S. Dollar Index (DXY), this study examines whether that dominance is likely to persist amid rising geopolitical tensions, shifting trade patterns, and the expansion of dollar-backed stablecoins. To evaluate this question, this paper analyzes three factors shaping the dollar's international role: USD stablecoin use, Treasury holdings by central banks, and dollar use in cross-border payments. These three factors are often examined independently, but our report explores how they coexist. First, it outlines dollar dominance today, China's manufacturing dominance, and U.S. sanctions. Then, it assesses the likelihood of six different states where the three factors each increase or decrease. The analysis found that the most probable outcome is continued growth in stablecoin adoption, Treasury demand, and cross-border dollar use (1,1,1). Our findings suggest that continued growth in USD stablecoins and crossborder dollar use will help sustain the dollar as the world's dominant international currency despite increasing geopolitical fragmentation.