Investor confidence in stablecoins is tied to the issuer’s ability to redeem them for fiat currency at any time. To ensure that, stablecoin companies keep backup funds to secure their value. They hold actual U.S. dollars at a 1:1 ratio, alongside safe investments like U.S. government debt that earns interest.
Under the U.S. Genius Act law, stablecoin issuers are required to hold reserves including dollars and short-term Treasuries. Treasury Secretary Scott Bessent recently described dollar-backed stablecoins as a tool supporting the dollar’s dominance, noting that the dollar accounts for nearly 90% of the foreign exchange transactions.
With aggregate holdings approaching $200 billion, stablecoin issuers are already among the top 20 holders of U.S. sovereign debt, leaving behind reserves of several major nations.
Risks to EMs
While such a plan may strengthen the dollar, it could also create severe risks for emerging economies with…
