The bank’s strategists have widely varying estimates for the eventual size of the stablecoin market, ranging from $500 billion to $2 trillion, according to the report.
The higher end of that range could drive dollar demand to $1.4 trillion, the report said.
Ninety-nine percent of stablecoins are pegged to dollars or underlying dollar assets, per the report.
The dollar demand driven by the growth of stablecoins depends on how much of that demand comes from foreign corporations and households, rather than U.S. bank deposits or money market funds, according to the report.
Already, over the last two years, there has been a correlation between the dollar’s value and stablecoins’ total market capitalization, per the report.
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It was reported Friday (Oct. 3) that the stablecoin market has grown 42% this year and topped $300 billion in value. PYMNTS reported that this growth has been driven by efforts to expand the use of stablecoins beyond being simply crypto’s payment plumbing and toward becoming a building block for next-generation payments, treasuries and capital markets.
On Aug. 20, it was reported that Treasury Secretary Scott Bessent had indicated to Wall Street that he expects stablecoins to become a crucial driver of demand for government bonds.
That report noted that the GENIUS Act, which was passed in July and created a regulatory framework for stablecoins, requires stablecoins to be backed by certain “ultra-safe and ultra-liquid” assets, including Treasury bills.
When the President’s Working Group on Digital Market Assets released its report “Strengthening American Leadership in Digital Financial Technology,” it warned that delay in embracing stablecoins could threaten the dollar’s primacy.
“Without strong U.S. leadership, the development of alternative payment arrangements may weaken the role of U.S. financial institutions, the dollar, and the effectiveness of U.S. national security tools,” it said.
The report fulfilled the mandate of Executive Order 14178, which directed the Working Group to propose policy and regulatory recommendations that, among other things, reinforce the sovereignty of the U.S. dollar.
