Stablecoins and Tokenization Fuel Dollar Dominance

A new paper co-authored by Circle executive Gordon Liao and economists Eswar Prasad and Tony Zhang argues that digital finance innovations, particularly dollar-backed stablecoins and tokenization, are strengthening rather than weakening the dollar's global dominance.

The researchers point to a key metric: cross-border payments. Despite a decline in foreign exchange reserves from 72% in 2000 to 57% in the first quarter of 2026, the dollar still accounts for around 59% of transactions outside the euro area, remaining remarkably stable.

Stablecoin data also supports this argument. More than 98% of stablecoins by value are dollar-denominated, with USDC and USDT leading the field. The USDC coin alone has processed over $10 trillion in lifetime transactions, representing roughly 80% of dollar stablecoin on-chain activity in early 2026.

The authors project that stablecoin reserves could eventually reach trillions in total value, driving a meaningful demand effect on the Treasury market. This would lock in dollar dominance through network effects, according to ECB board member Isabel Schnabel.