Just as Mark Twain joked that news of his death “was an exaggeration,” it appears that reports of the demise of the U.S. dollar have also been exaggerated.
In the early days of the Donald Trump administration, many commentators speculated that this version 2.0 of Trump’s economy could threaten the greenback’s global hegemony – a dominance that has waned over the decades – and the enormous advantages it offers the country in managing its public debt. Yet amid the noise, the antics, the trade wars and the endless contradictions, Washington is quietly taking steps to strengthen its dominance.
In short, there is a push underway to “make the dollar great again.” The administration is aggressively developing the market for stablecoins – a type of cryptocurrency with a stable value that serves as an alternative payment system to traditional currency – almost all of which are pegged to the US dollar. This boom, which has already reached astronomical figures, represents a new form of indirectdollarization.
Meanwhile, as the Financial times As we reported earlier this month, senior government officials have been exploring the possibility of encouraging other countries to adopt the dollar, as Ecuador and El Salvador did 25 years ago, and have held meetings to that effect with various experts, including Steve Hanke, a veteran inflation and currency specialist at Johns Hopkins known in some circles as the “Money Doctor.”
Hanke confirmed the meeting to EL PAÍS, which took place right in the midst of the turbulence in Argentina, while stressing, as the government did when the news emerged, that no decision has yet been made. “Although the Trump administration has a well-articulated policy on dollar-based stablecoins, it has yet to establish a more comprehensive strategy to promote the use of the dollar,” he said.
Stablecoins are virtual currencies, like all cryptocurrencies, but designed to maintain a less volatile value and are pegged to a specific asset. They are used to exchange other cryptocurrencies, pay for goods, and send money internationally. Today, 99% of all stablecoins in circulation in the world – which JPMorgan estimates amount to $225 billion – are denominated in dollars. It is a kind of digital dollar, but issued by the private sector, unlike the Eurozone or Beijing initiatives.
By 2028, some reports suggest this market could reach $3 trillion. Washington has been very explicit about its expectations for the new currency. Last July, the Genius Act, the US law that regulates digital assets and their growth, was decisively approved. At the time, Treasury Secretary Scott Bessent stated that this type of technology “will strengthen the dollar’s status as a global reserve currency, expand access to the dollar economy for billions around the world, and lead to a surge in demand for U.S. Treasury securities, which underpin stablecoins.” He added that it “could also push millions of new users around the world into the dollar-based digital asset economy.”
When the financial world talks about the “exorbitant privilege” of the dollar, it is largely referring to the demand for US government debt mentioned by Bessent. This refers to the lower cost at which the United States can finance its enormous debt, which exceeds 120% of its gross domestic product (GDP). The country already pays more interest on debt than on defense. And stablecoins are backed by Treasury bonds.
How strong is the dollar’s dominance today? Today the dollar represents 58% of the total world currency reserves (the euro, in second place, reaches just 20%). That near 60% is indeed a remarkable dominance, but it pales in comparison to the 1970s, when it was over 80%, and it also represents the lowest level in two decades. Its pre-eminence has eroded, and while Trump has played with fire on trade, that doesn’t mean any currency could realistically dethrone the dollar in the foreseeable future.
As Joseph Gagnon, a finance expert at the Peterson Institute for International Economics in Washington, explains: “Currently there are only two possible competitors: the euro and the yuan. People are afraid to entrust their money to the Chinese, whose authorities maintain strict controls on capital movements in and out of the country. Europe is too fragmented to challenge the dollar; it needs more unified banking, financial and fiscal systems, with a large central budget and a single Treasury, as in the United States (…) When this happens, the dollar will face real competition.”
Cryptocurrencies, of course, do not appear to be the path for the euro to overtake the dollar. Santiago Carbó, professor of Economics at the University of Valencia in Spain, warns of the danger that Europe could “miss the boat” with digital currencies. “Visa and Mastercard are already American. If you also don’t get on the stablecoin wave, you will be left far behind in the global payment systems market.”
In addition to virtual currencies, there are other ways to promote the use of dollars, explains Steve Hanke. One is known as a “currency board,” where the national currency is issued and exchanged at a fixed rate against the dollar and fully backed by it. Another is directdollarization, which involves replacing the original currency with the U.S. dollar. Drawing on his experience with projects such as thedollarization programs in Montenegro (1999) and Ecuador (2000), among others, Hanke advocates for a policy that addresses all three possibilities. In his opinion, this would provide an advantage not only to the United States, but also to countries that adopt it.
It’s a widely debated issue. For Gagnon,dollarization represents “an act of desperation” on the part of some economies, an act “difficult to reverse,” and he doubts whether any country will pursue it. In some countries, it has served as a form of discipline and helped control inflation, but it also means adopting the Federal Reserve’s monetary policy and limiting countries’ ability to manage crises. At the same time, the wave of stablecoins complicates capital controls and the possibility of currency depreciation.
The President of the European Central Bank (ECB), Christine Lagarde, has warned against the rise of these cryptocurrencies, which are particularly attractive for enabling faster and cheaper international transactions. “These assets are not always able to maintain their fixed value,” he said at a hearing before the European Parliament last June. It also warned that a potential shift from banks to stablecoins in deposits used for savings and payments “could negatively affect the transmission of monetary policy through banks,” meaning central bank measures could have a reduced effect on the real economy. For this reason he called for strong regulation.
At the same time, the global role of the euro has gained greater importance in Frankfurt. “The changing landscape (referring to Trump’s protectionist turn) could open the door for the euro to play a greater international role,” he said just a month earlier in Berlin. The digital euro has also become a priority on the European Union’s financial agenda.
Indeed, as with so many things in the Trump universe, the strategy to increase the dollar’s hegemony contradicts other policies of his administration. Its value fell by around 10% against other major currencies in the first half of the year and, particularly against the euro, has not returned to the level before the announcement of the big tariff wave on 2 April this year, the so-called “Liberation Day” (see chart).
A cheaper dollar would help reduce the trade deficit that so frustrates Trump, but clashes with the desire to preserve “exorbitant privilege.” So what’s the priority? While tariff policies and the push towards dollar-backed stablecoins may seem inconsistent with each other, they have a common purpose: they both help finance the fiscal deficit. Furthermore, cryptocurrencies could make the Trump family, who have invested heavily in them, immensely rich.
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