Concerns About Dollarization Impact on Global Finance
In London, Europe’s largest asset manager is raising alarms regarding the surge in dollar support, which is linked to the recently passed US Genius Act. This law has the potential to result in significant changes in financial flows, possibly shaking up the global payment system.
Last month, the US Senate approved the Genius Act, establishing regulations for cryptocurrency transactions and enforcing a dollar backdrop. The bill is expected to move to the House for approval, with President Donald Trump likely to sign it. Meanwhile, other nations are apprehensive about the repercussions of increased “dollarization,” particularly concerning their own purchases.
Vincent Mortier, Chief Investment Officer at Amundi Asset Management, shared his mixed feelings with Reuters. He noted, “It could be a genius move, or it could be a misstep,” emphasizing his concerns regarding the new US legislation.
JPMorgan forecasts that the circulation of stablecoins may nearly double to reach approximately $500 billion in the coming years, although some projections suggest figures as high as $2 trillion. Under these new US regulations, stablecoins are required to be tethered to the dollar, resulting in increased US Treasury purchases. While this might assist the US in managing its fiscal deficit, it could potentially create complications for both the US and other economies.
Mortier warned that creating alternatives to the US dollar could lead to its weakening. He stated, “If the country is pursuing misguided policies, it might imply that the dollar isn’t as strong as perceived.” Currently, around 98% of all stablecoin transactions are dollar-based, despite over 80% occurring outside US borders.
Italian Finance Minister Giancarlo Giorgeti raised concerns in April, arguing that US stablecoin policies pose a “greater threat” to European financial stability compared to Trump’s trade wars. He pointed out that having access to dollars without needing a US bank account is appealing to many, which might compromise financial independence.
International settlement banks have echoed these warnings, highlighting risks such as threats to financial sovereignty, transparency issues, and potential capital flight from developing markets.
Mortier, who manages €2 trillion ($2.36 trillion) in assets for Amundi, hasn’t dismissed the complexities surrounding stablecoins. While he remains undecided about their future, he is wary of the potential disruption they could cause to financial stability. He noted that, like dollarization, they might act in a quasi-banking capacity and also serve as direct payment methods.
