Citi Wealth stated in a newly released report that the growth of stablecoin adoption will not harm the dollar; rather, it may 'consolidate the dollar's long-term global dominance' and challenges the idea that Bitcoin will end dollar dominance.
According to The Block, Citi Wealth strategists wrote in their report:
Initially, cryptocurrencies like Bitcoin were seen as competitors to central bank-issued currencies. In fact, some believe (and continue to believe) that Bitcoin could end the dominance of the dollar; however, stablecoins, which account for over four-fifths of cryptocurrency trading volume, are challenging this notion.
Citigroup: Stablecoins challenge the view that 'Bitcoin will end dollar dominance'
Citigroup points out that the vast majority of stablecoins are pegged to the dollar, and issuers purchase cash and U.S. government bonds as reserves to support stablecoins. If the U.S. government takes action to further legalize stablecoins, it could further solidify the dollar's dominance.
Clearer regulations may also further enhance the attractiveness of stablecoins. If this is the case, issuers of stablecoins may increase their demand for U.S. Treasury securities beyond the current purchase level of around 1%.
Therefore, stablecoins will not replace the dollar; instead, they can make it easier for the world to use the dollar and consolidate its long-standing global dominance.
The adoption rate of stablecoins has been rising in recent years. Citigroup reports that 'stablecoin trading activity reached historic highs, with trading volumes hitting $5.5 trillion in Q1 2024. In comparison, credit card giant Visa's trading volume during the same period was about $3.9 trillion. In response to this challenge, Visa, PayPal, and other traditional payment providers are issuing their own stablecoins or settling transactions using stablecoins from other companies to adapt to this trend.'
Does Trump also agree that stablecoins will strengthen dollar dominance?
It is worth noting that Trump, who aims to maintain the dollar's global dominance, supports Bitcoin and clearly does not believe that 'Bitcoin will challenge the dollar's status,' and may even share similar views with the Citigroup report.
Trump plans to make the U.S. the global cryptocurrency capital, aiming to dominate the future discourse and market share in the cryptocurrency field, while also opposing the Federal Reserve's introduction of a CBDC digital dollar. This could further promote the legalization of dollar stablecoins and their adoption in global markets, indirectly achieving his goal of consolidating dollar dominance.
Federal Reserve Board member Christopher Waller also publicly stated this year that people often speculate that cryptocurrencies like Bitcoin could replace the dollar as the world's reserve currency, but he disagrees.
Most DeFi transactions involve the use of stablecoins, with 99% of the market value of these tokens pegged to the dollar.
Therefore, any growth in transactions in the DeFi world may only strengthen the dollar's dominance.
IMF warns that stablecoins will challenge the status of fiat currency
However, Citi's strategists believe that the viewpoint that 'stablecoins will consolidate the dollar's global hegemony' is clearly contrary to that of the International Monetary Fund (IMF).
The IMF has repeatedly warned in recent years that stablecoins have the potential to replace national sovereign currencies and must be closely regulated. It advocates that countries should actively introduce their own central bank digital currencies (CBDCs) to address the challenge that physical cash may face due to the rise of stablecoins, cryptocurrencies, and other diverse digital payment options.
Conversely, the IMF is less concerned about the possibility of 'Bitcoin replacing fiat currency.' A Morgan Stanley report earlier this year indicated that the rise of Bitcoin, stablecoins, and CBDCs has the potential to drive global 'de-dollarization.' However, IMF President Kristalina Georgieva has clearly scoffed at this, emphasizing that she is not overly worried about Bitcoin competing with the dollar and reiterating that cryptocurrencies are assets, not currencies, and are still far from rivaling the dollar.
Samson Mow predicts a future of 'super Bitcoinization,' with a sharp decline in demand for fiat currency
However, Bitcoin OG and Salvadoran Bitcoinization proponent Samson Mow boldly predicted in an interview mid-year that 'Bitcoin will replace the dollar.' He believes that stablecoins and Bitcoin may coexist for a while until we reach a turning point of 'hyper Bitcoinization,' at which point Bitcoin will become the primary medium of value storage and transaction, and the demand for fiat currency will significantly decrease.
