Stablecoins as Statecraft: Reclaiming US Financial Sovereignty in the Eurodollar Market

Executive Summary

The United States built the global dollar system but lost control of how it operates. The offshore Eurodollar market, which represents between $12 to $15 trillion in on-balance-sheet claims for banks headquartered outside the United States, functions outside any American regulatory authority. Foreign banks create dollar-denominated credit at will, capture the intermediation profits, and rely on the Federal Reserve as an implicit backstop when the system seizes up. This presents a substantial risk to the US economy. The Fed extended more than $580 billion in emergency swap lines during the 2008 financial crisis to stabilize a market it had no power to supervise. This dynamic creates a free-riding problem where the United States bears the costs and risks of the global dollar system while foreign institutions and governments capture the benefits.

The Triffin Dilemma, first articulated in 1959, describes the structural bind at the center of this system. The country whose currency serves as the global reserve must run persistent deficits to supply that currency to the world, but those deficits erode confidence and accumulate sovereign liabilities held by foreign governments. Since the end of gold convertibility, the dilemma has expressed itself through structural current account deficits, growing foreign ownership of US Treasuries, and an industrial sector squeezed by persistent dollar overvaluation. Traditional reserve accumulation forces the United States to issue sovereign debt to every foreign central bank that wants to hold dollars. The Eurodollar system compounds the problem by multiplying those dollars through offshore credit creation that no American regulator can constrain.

Regulated stablecoins offer the United States a tool to begin restructuring this dynamic. Under the GENIUS Act, signed into law in July 2025, stablecoin issuers must hold 100 percent reserves in Treasury bills, Treasury repo, or insured deposits. They cannot lend against those reserves. When a foreign individual or corporation holds a GENIUS-compliant stablecoin instead of a Eurodollar deposit, the underlying Treasury security sits on the balance sheet of a US-regulated entity rather than fueling offshore credit multiplication. The dollar-equivalent value circulates globally while the reserve stays home. Stablecoins thus mitigate the external vulnerability dimension of the Triffin Dilemma. They give the world access to dollar instruments without increasing the stock of sovereign debt held outside the United States. 

Global competition in digital assets strengthens the strategic case for stablecoins. China's digital yuan now pays interest to holders, and its Cross-Border Interbank Payment System processes transactions across 190 countries. The mBridge project is executing wholesale cross-border settlement almost exclusively in digital yuan. Europe's MiCA regulation provides a framework for euro-denominated stablecoins that is, in some respects, further along than US implementation. Each of these developments erodes American influence over the rails through which money actually moves, the most contested and vulnerable dimension of dollar dominance.

This paper proposes a framework to assert stablecoin supremacy across five policy areas. First, harden GENIUS Act implementation by building a backstop architecture (committed repo lines with primary dealers and a pathway to Federal Reserve Standing Repo Facility access) that makes compliant stablecoins superior to offshore alternatives. Second, export stablecoins rather than Eurodollar deposits in international trade settlement, channeling Treasury demand back onshore and eliminating the offshore credit multiplier on marginal dollar flows. Third, develop a fee and rewards framework that allows regulated stablecoins to compete with interest-bearing Eurodollar deposits and the digital yuan without violating the statutory interest prohibition. Fourth, address the DeFi credit multiplication risk through smart contract-level restrictions and enforcement chokepoints that prevent unregulated protocols from recreating the Eurodollar multiplier on blockchain rails. Fifth, preserve foreign currency sovereignty by supporting local monetary systems alongside stablecoin adoption, ensuring the framework functions as shared economic development rather than financial coercion.

Stablecoins give the United States a policy instrument it has never had: a way to meet global dollar demand, strengthen governance over its currency, generate structural Treasury demand, and project American financial architecture into markets that legacy banking has never reached. And they achieve these objectives without issuing additional sovereign debt to foreign governments or expanding the Federal Reserve's balance sheet.

In short, stablecoins are a powerful tool of economic statecraft, and policymakers should treat them accordingly. The country that controls the rails on which the world’s savings move will shape the next century of international finance. That country should be the United States.