The stablecoin race

Discover key highlights within the DeFi house. This article dives into: “The stablecoin race”.

Econographics

July 10, 2025 • 2:56 pm ET

The stablecoin race

By
Hung Tran and Barbara C. Matthews

Stablecoins have develop into the most recent manifestation of geopolitical competitors. Active—however conflicting—coverage agendas within the United States, the European Union (EU), the United Kingdom (UK), and China all level towards intensifying worldwide competitors amongst main and potential future reserve currencies. Each nation’s agenda is motivated by questions concerning the sustainability of the greenback’s dominant world position.

The stablecoin race started in 2019 when Facebook proposed the stablecoin Libra (later re-named Diem). Central banks responded by growing central financial institution digital currencies (CBDCs) so as to stay related within the digital fee house. Private and public sector entities typically agree on the advantages of this transition; together with elevated effectivity and decreased prices for funds system, particularly cross-border transactions. However, nationwide coverage preferences about digital fee mechanisms are diverging.

China and the EU are pursuing CBDCs issued on a unified ledger. China’s established government-issued CBDC (“e-CNY”) experiment has reached cumulative transactions of $7.3 trillion. However, the choice to formally undertake the e-CNY has but to be made. China has not been shy about its intention to make use of the e-CNY as a part of its geopolitical competitors with the United States by increasing worldwide use of the RMB. 

European Central Bank (ECB) President Christine Lagarde has additionally promoted the digital euro to broaden the worldwide position of the euro. The ECB has simply accredited a plan to settle distributed ledger know-how transactions utilizing central financial institution cash. However, legislative initiatives to authorize issuing a digital euro have stalled, partially as a result of it’s perceived as competing with financial institution deposits.

The UK helps wholesale CBDCs, viewing a digital pound as a pure evolution to present digital money transfers amongst enterprises somewhat than as a geopolitical initiative. Unlike the ECB and the People’s Bank of China, the Bank of England is constructing an exterior programmable ledger that can be managed by exterior non-public sector third events.

The United States opposes CBDC issuance, as a substitute prioritizing dollar-based stablecoins issued by non-public sector entities. The excellent quantity of stablecoins exceeds $200 billion, dominated by two US corporations: Tether and Circle. The overwhelming majority of their stablecoins are pegged to the US greenback, successfully enhancing the effectivity and lowering the prices of present world funds. Maintaining the peg has propelled these stablecoin corporations to develop into important holders of short-term US Treasury securities; they’re now the third-largest purchasers of US Treasury payments in 2024 (of just about $40 billion) after JPMorgan and China. The focus of liquidity in dollar-based stablecoins paired with their portability on the blockchain and strict regulatory necessities in different jurisdictions create appreciable obstacles to privately issuing stablecoins backed by currencies apart from the US greenback.

The rising world use of dollar-based stablecoins is worrying main central banks. They worry that elevated dollar-based stablecoin utilization will unleash forex substitution results and drive digital dollarization. The ECB, for instance, asserts {that a} digital euro is “crucial for bolstering European sovereignty” so as to make sure the efficient transmission of financial coverage, lower reliance on US based mostly card fee platforms, and keep the authorized tender nature of the euro. In different phrases, the ECB more and more sees itself as competing with privately issued stablecoins backed by the US greenback.

The evolving US regulatory framework for crypto property

President Trump pledged in the course of the 2024 election to make the United States “the crypto capital of the world.” Congress and federal regulators have rapidly embraced the idea. Strong bipartisan help within the Senate resulted within the GENIUS Act passing within the Senate week after deliver launched. Additional market construction laws is anticipated within the Senate in the course of the summer time. These two Senate payments, together with the CBDC Anti-Surveillance State Act (banning Federal Reserve issuance of a digital greenback with out Congressional approval), can be up for vote within the House of Representatives in the course of the week of July 14.

By taking on the Senate-passed variations of the stablecoin and crypto market construction payments, the House of Representatives management is signaling an intention to cross the Senate variations with out adjustments. The transfer successfully scuttles preliminary House efforts to increase full banking regulation to stablecoins. However, the Senate invoice integrated the House prohibition on nonbank stablecoin issuers from paying curiosity on stablecoin holdings. The framework more likely to cross Congress thus carves out a aggressive area of interest for banks, enabling them to guard their deposit base by issuing their very own stablecoins or by providing tokenized financial institution deposits, which may pay curiosity to deposit holders.

Proponents assert that the a federal framework for stablecoins will broaden market progress to $2 trillion by 2030 and safe “dollar dominance” over the worldwide monetary system. Since stablecoins have to be backed by dollar-based liquid property, progress within the sector may be anticipated to extend demand for US Treasury securities.

Geopolitical implications

The prospect of rapidly increasing the dollar-based stablecoin market after the Senate handed the GENIUS Act raised alarm bells, significantly in China and Europe.

In China, state-sponsored media responded to the Senate vote by calling for issuance of yuan-based stablecoins “sooner rather than later.” Beijing’s template might be Hong Kong’s May 2025 Stablecoins Ordinance. The rule permits stablecoin issuance referencing the HK greenback and different main currencies whereas enhancing stablecoin oversight and shopper safety.

EU reactions to the Senate vote have been combined. ECB President Lagarde’s testimony to the European Parliament after the vote characterised stablecoins as creating “risks for monetary policy and financial stability,” partially as a result of they may intrude with the transmission of financial coverage. A latest European Parliament analysis report acknowledges the ECB’s home and geopolitical issues about dollar-backed stablecoins however identifies quite a few points relating to the digital euro, together with private privateness and competitors issues. The Bank for International Settlements additionally lately validated objections to dollar-backed stablecoins based mostly on monetary stability and financial sovereignty issues, whereas including technical architectural objections to reliance on distributed ledgers. 

China and the EU will not be alone. The Atlantic Council’s CBDC Tracker notes that as of July 2025, a document excessive variety of governments (forty-nine) have launched formal CBDC pilots. Given heightened geopolitical pressure, many of those nations would possibly speed up their CBDC tasks and implement stablecoin oversight regulations in response to US stablecoin coverage initiatives.

For instance, leaks to the Financial Times point out that the European Commission plans to acknowledge and regulate privately issued non-euro stablecoins, regardless of the de facto prohibition in opposition to such devices within the Market in Crypto Asset Regulation (MiCAR).

However, CBDC initiatives face different hurdles moreover competitors with stablecoins—most notably, lackluster demand. European democracies haven’t but secured legislative mandates to situation CBDCs. Tepid legislative help could mirror missing public enthusiasm. However, CBDC take a look at utilization has elevated in India and China.

Despite the rise in 2024, public acceptance of the e-CNY has been low. Demand stays robust for the e-CNY’s competitors. Familiar cellular fee platforms (Alipay, WeChat Pay) represent 90 % of cellular funds (2.5 billion customers), which in flip account for 73 % of home funds. This dynamic could concern Europe, whose digital euro is anticipated to compete with US-based card fee corporations.

In Jamaica, the IMF experiences that the home CBDC solely accounts for 0.1 % of money in circulation.  Its deployment was comparatively modest, with funds restricted to authorities charges, taxes, and visitors tickets. Recent public surveys within the UK and the EU point out restricted consciousness of, and lukewarm public help for, the digital pound and the digital euro respectively.

Ultimately, speedy US stablecoin coverage formulation will set off predictable world reactions. Many central bankers, particularly in China and Europe, have more and more vocalized their opposition to extending the greenback’s world position into the digital area by privately issued stablecoins. However, their capability to make use of CBDCs to compete with dollar-based stablecoins requires sooner motion and stronger political help than what have been seen to this point. The United States retains the benefit on this new area of geopolitical competitors—for now.

Hung Tran is a nonresident senior fellow on the Atlantic Council’s GeoEconomics Center and senior fellow on the Policy Center for the New South; and a former senior official on the Institute of International Finance and International Monetary Fund.

Barbara C. Matthews is a nonresident senior fellow on the Atlantic Council’s GeoEconomics Center. She has had the consideration to function the primary US Treasury Attache to the EU in Brussels and as Senior Counsel to the House Financial Services Committee.  Currently, she is the Founder and CEO of BCMstrategy, Inc., an organization that generates AI coaching knowledge and indicators relating to public coverage.

At the intersection of economics, finance, and overseas coverage, the GeoEconomics Center is a translation hub with the purpose of serving to form a greater world financial future.

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This article is tailored from www.atlanticcouncil.org. We’ve restructured and rewritten the content material for a broader viewers with improved readability and search engine optimization formatting.

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