Cornell professor Eswar Prasad made the case on Bloomberg that dollar-backed stablecoins are strengthening, not undermining, the US dollar’s position in the global financial system.
Dollar-pegged tokens now account for roughly 98% of the global stablecoin market by capitalization. It’s near-total dominance of a fast-growing asset class, and it means the practical effect of stablecoins has been to digitize the dollar rather than compete with it.
The Treasury connection
Stablecoins need reserves. And the preferred reserve asset, increasingly by regulatory design, is US Treasury bills.
Treasury Secretary Scott Bessent has contextualized stablecoin market growth in the range of $2-3 trillion, with issuers potentially holding around $125 billion in Treasury bills as of late 2025. That creates a new, structurally embedded source of demand for US government debt.
Prasad’s analysis, which he’s published across outlets like the Financial Times and IMF Finance & Development, frames this as a feedback loop. Stablecoins grow, they buy Treasuries to back their tokens, that demand supports the Treasury market, and that in turn reinforces confidence in the dollar.
Market growth estimates for the stablecoin sector range from $700 billion to $4 trillion by the early 2030s. The wide spread reflects genuine uncertainty about how quickly regulatory clarity will arrive and how aggressively institutional players will enter the space.
The dollarization risk for everyone else
Prasad’s work highlights the risk that dollar-backed stablecoins could accelerate dollarization in emerging markets. When citizens in countries with volatile currencies can easily hold and transact in digital dollars via stablecoins, the incentive to stick with the local currency weakens.
Central bank digital currencies, or CBDCs, were supposed to be the countermove. Governments from China to Nigeria have launched or piloted their own digital money, partly to maintain monetary sovereignty in a world where private dollar tokens are spreading. Prasad’s assessment, though, suggests CBDCs have shown limited effectiveness in countering private dollar-backed alternatives.
The Fed’s careful distance
Fed Chair Kevin Warsh reiterated during congressional testimony that the Fed has no intention of serving as a safety net for crypto and stablecoin projects.
Forthcoming stablecoin legislation is expected to require backing with safe assets like Treasuries and impose reserve transparency requirements. That framework would formalize stablecoins as a kind of narrow bank, holding highly liquid government securities without taking credit risk. But the Fed’s explicit refusal to backstop these entities means that in a stress scenario, stablecoin holders would be on their own in ways that bank depositors, protected by FDIC insurance, are not.
Prasad’s argument is that stablecoins can modernize payment infrastructure, particularly for cross-border transfers where traditional systems remain slow and expensive, without requiring central banks to fundamentally alter their role.
What to watch
The competitive landscape among issuers also deserves attention. Tether and Circle currently dominate, but regulatory clarity could invite traditional financial institutions into the space.
Emerging market central banks face perhaps the most consequential set of decisions. If Prasad is right that CBDCs aren’t effective counterweights to private dollar stablecoins, these institutions may need to choose between trying to restrict stablecoin access, which has proven difficult to enforce, or finding ways to coexist with a parallel dollar-denominated payment layer operating within their borders.