Central Banks Confront Growing Pressure from Dollar-Backed Stablecoins: Sovereignty vs Innovation

The Rising Tide of Dollar-Backed Stablecoins

Central banks worldwide are facing increasing pressure to respond to the explosive growth of dollar-backed stablecoins, a class of digital assets pegged to the U.S. dollar. These tokens, designed for fast, borderless transactions, have gained significant traction, creating a complex dilemma for global regulators: should they embrace innovation or protect financial sovereignty?

Stablecoins are no longer a fringe concept. As of 2025, over $250 billion worth of such tokens are in circulation globally, with almost all backed by the U.S. dollar. Analysts project this figure could balloon to $1.6 trillion by 2030, with some forecasts suggesting an upper limit of $3.7 trillion, particularly as the U.S. adopts more crypto-friendly policies.

These developments are reshaping the dynamics of financial systems, where traditional banks, central banks, and payment networks are struggling to keep pace with rapidly evolving digital infrastructures.

The U.S. Moves Forward — Others Weigh Risks

Washington’s forward momentum is evident. New legislative frameworks are emerging to provide clarity around stablecoin issuance, and support is growing for the use of tokenized dollars as a tool to extend U.S. financial dominance.

However, the Bank for International Settlements (BIS) recently issued a cautionary note. The institution warned that the unchecked rise of stablecoins could undermine trust in sovereign currencies, threaten financial stability, and facilitate illicit activities such as money laundering and terrorism financing.

These warnings are echoed in the Eurozone, where the European Central Bank (ECB) has emphasized the need to develop a digital euro to reduce reliance on U.S.-backed payment systems and maintain European monetary control.

Domestic Digital Currencies: A Mixed Track Record

In response to stablecoin proliferation, some central banks have accelerated efforts to develop Central Bank Digital Currencies (CBDCs).

These state-issued digital forms of fiat money aim to offer the speed and convenience of stablecoins while preserving the trust and regulatory oversight associated with traditional systems.

Yet, the journey has not been smooth.

The Bank of Korea, after initial enthusiasm, recently paused its CBDC pilot program, while the Bank of England now leans toward developing tokenized deposits instead of a full-fledged digital pound.

Meanwhile, in Nigeria, the launch of the e-Naira was met with public apathy, with most users favoring private stablecoins backed by U.S. dollars.

Strategic and Economic Implications

Global policymakers now find themselves at a crossroads. According to Varun Paul, former fintech chief at the BoE and now with Fireblocks, “We are entering a dollar-backed stablecoin world — and for countries not aligning with this trend, the risk of missing out on financial leadership is growing.”

Indeed, fragmented regulatory landscapes, combined with varying levels of consumer financial literacy, limited IT infrastructure, and cross-border tax complications, make the path forward complex for many emerging markets.

Experts like Josh Lipsky of the Atlantic Council see the digital euro project as a potential global benchmark: “If the Eurozone gets it right, it could establish a public-sector standard for the world.”

Conclusion

As dollar-backed stablecoins continue to reshape global finance, central banks must walk a tightrope between embracing innovation and preserving financial sovereignty.

With the U.S. leading in policy and adoption, the pressure is mounting on other regions to catch up—or risk losing influence in the next generation of digital finance.

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