Can Stablecoins Actually Challenge Dollar Dominance, or Will They Entrench It?

The rise of stablecoins presents a deceptive promise: easier payments and frictionless global transfers. Yet beneath this veneer lies a more troubling reality, according to Eswar S. Prasad, a former International Monetary Fund economist now teaching at Cornell University. In his provocative analysis titled “The Stablecoin Paradox,” Prasad dissects how these digital currencies might paradoxically strengthen U.S. dollar hegemony rather than democratize the global financial system.

The False Narrative of Decentralization

Prasad’s core argument challenges a widespread misconception: that stablecoins offer genuine decentralization. In reality, he contends, they represent a concentration play. These instruments anchor themselves to existing fiat currencies—predominantly the U.S. dollar—creating a dependency that mirrors traditional monetary arrangements. The illusion of decentralization masks a fundamental truth: stablecoins require trust in their issuing institutions, whether corporate entities or consortium-based systems. This institutional reliance effectively transfers power from traditional central banks to a new class of private gatekeepers.

How Stablecoins May Reinforce Dollar Dominance

The paradox deepens when examining stablecoins’ role in the international monetary landscape. While they ostensibly reduce transaction costs and accelerate cross-border commerce, their dollar-pegging mechanism inadvertently strengthens the greenback’s grip on global finance. Smaller nations, in particular, face mounting pressure as stablecoins enable capital flows denominated in dollars without passing through traditional banking channels. This disintermediation, while appealing to users, undermines the monetary sovereignty of countries lacking economic scale or institutional heft.

The Concentration of Financial Power

Perhaps most concerning is how stablecoins may consolidate financial influence among dominant market players. Unlike decentralized systems that genuinely distribute power across participants, stablecoin ecosystems concentrate authority within issuing organizations. The governance structures, collateral management, and redemption mechanisms remain opaque to end-users, creating asymmetric information and power dynamics reminiscent of pre-digital finance.

Prasad’s warning resonates in an era when digital currencies are often presented as liberatory tools. Yet without thoughtful regulation and structural safeguards, stablecoins risk becoming instruments that entrench existing power hierarchies while wearing the mask of innovation.