Digital Financial Technologies May Strengthen the U.S. Dollar's Global Dominance
New research presented at the Jackson Hole symposium suggests that digital financial technologies, such as stablecoins, may reinforce rather than weaken the dominance of the U.S. dollar in global finance. The paper argues that innovations making currencies easier to access and transact could amplify existing network effects favoring dominant currencies like the dollar. The authors model how tokenized money might lead more companies to borrow in dollars, increasing demand for dollar assets and deepening markets. Despite rising U.S. debt and geopolitical tensions challenging the dollar's position, it still accounts for about 90% of foreign-exchange transactions. However, increased reliance on the dollar could expose other countries to greater risks from U.S. policy spillovers. The paper highlights both potential benefits—such as stronger demand for U.S. debt—and risks like concentrated risk in Treasury markets and reduced fiscal discipline.
Topics: digital currencies global finance Jackson Hole symposium U.S. dollar