Stablecoins Exposed: Bank of England Reveals Dollar Dominance Tool

The Bank of England has shed light on the true purpose of stablecoins, revealing their role in reinforcing US dollar dominance. In a recent address, Carolyn Wilkins, an external member of the Bank's Financial Policy Committee, framed stablecoins as a tool of economic statecraft.

Wilkins identified three channels through which stablecoins reinforce dollar hegemony: providing 24/7 cross-border settlement, enabling digital dollarisation, and creating structural demand for US safe assets. Issuers like USDT and USDC hold nearly $150 billion in Treasury bills, generating a positive feedback loop where increased adoption drives demand for T-bills.

However, Wilkins also warned of a negative feedback loop where mass redemptions trigger forced T-bill sales, amplifying yields and potentially causing broader market stress. This risk is comparable to the 2022 UK LDI gilt crisis.