Above: President Trump signs the Genius Act. Official White House Photo.
For years, analysts have warned that the dollar’s position as the world’s reserve currency may be slipping.
Central banks from China to Russia have trimmed their dollar reserves, diversified into gold, and sought alternatives for trade settlement.
However, the U.S. has a plan B to shore up its currency.
This is according to new research from Handelsbanken, that finds the growth of stablecoin demand is also shoring up demand for U.S. treasuries, and the dollar.
"As China continues to reduce its exposure to the dollar system, there appears to be a growing need for a new backstop to support demand from new buyers," says Michel Gubel, an analyst at Handelsbanken.
Above: Stablecoins are countering the decline in Chinese demand for U.S. bonds.
He explains that China has been running a quiet campaign of de-dollarising its economy and the de-leveraging of the U.S. economy.
However, rather than fight the de-dollarisation narrative directly, the U.S. appears to be building a digital bridge to preserve dollar demand through financial innovation, effectively rolling out Plan B to counter China's efforts.
"To counterbalance the effects of falling foreign demand, the US House of Representatives passed the Financial Innovation and Technology for the 21st Century Act in May 2024, explicitly addressing the treatment of digital assets under U.S. law. This was later followed by the Genius Act in October 2024," says Gubel.
Above: China goes for gold.
He explains that this development seems crucial for maintaining demand for U.S. Treasuries,
offering an alternative source of funding as China’s role as a creditor continues to diminish.
Stablecoins, especially fiat-backed ones like USDC or USDT, maintain their 1:1 peg to the U.S. dollar by holding reserves in safe, liquid assets.
The largest and most reputable stablecoin issuers now keep the majority of these reserves in short-dated U.S. Treasuries, typically under one year in maturity.
China's Treasury holdings have declined by roughly USD 380BN over the past five years, while the USD stablecoin market has expanded by about USD 250BN during the same period.
The offset is clear.
"Encouragingly, the rate of change is moving in the right direction for the stablecoin market, particularly given its increasing commercial use," says Gubel.
"Taken together, this shift underscores the growing importance of stablecoins as a complementary
mechanism for supporting the Treasury market – and, by extension, the dollar’s stability," he adds.