Stablecoins Threaten Central Bank Control, Officials Warn

BIS studies have found that stablecoin adoption is strongest in high-inflation economies, which creates a vicious cycle. People flee to dollar stablecoins because their local currency is losing value. That flight itself puts further downward pressure on the local currency, which makes more people want to flee.

The US has effectively acknowledged this dynamic from the other side of the equation. The GENIUS Act, enacted in July 2025, established a regulatory framework that explicitly prioritizes private payment stablecoins over retail CBDCs. Washington has essentially decided that dollar stablecoins serve American interests by extending the dollar's global reach without requiring the Federal Reserve to build and maintain a retail digital currency infrastructure.

As stablecoin adoption grows, the reserves backing these tokens concentrate heavily into US Treasuries. Major stablecoin issuers hold tens of billions in short-term US government debt.

ECB, BoE, and IMF analyses from 2025 and 2026 have all flagged that large shifts into foreign-currency stablecoins can weaken not just monetary policy transmission but also bank resilience. If deposits migrate from domestic banks to stablecoin wallets, those banks have less capital to lend, which further diminishes the central bank's ability to stimulate or cool the economy through traditional channels.

Central bank consultations in late 2025, including those involving Levin, have focused on what regulatory frameworks might look like for stablecoins operating across borders. The challenge is jurisdictional: a stablecoin issued in the US under the GENIUS Act framework can be used by anyone with a phone and internet connection, regardless of what their local regulator thinks about it.