The Global Dollar Shortage and Stablecoins: How Digital Dollars Fill the Eurodollar Gap

The world runs on dollars it cannot get. Outside the United States, $14.3 trillion in dollar-denominated credit circulates among non-U.S. borrowers, according to the BIS Global Liquidity Indicators for Q4 2025: the fastest annual growth rate (8.5%) since 2014. Demand for dollar liquidity in emerging markets continues to outpace what the traditional banking system can supply, creating a structural gap that has persisted for decades. Now, a new class of instruments is filling it: dollar-backed stablecoins, which crossed $320 billion in total supply by mid-2026, with roughly 98% pegged to the U.S. dollar.

The parallel is hard to ignore. Like the eurodollar deposits that emerged in London in the 1950s, stablecoins are privately issued dollar liabilities circulating outside the U.S. banking perimeter. They require no bank account, no correspondent banking relationship, and no SWIFT membership. They settle in seconds rather than days. And their reserves are parked overwhelmingly in U.S. Treasury bills, creating a feedback loop that reinforces the very dollar dominance that geopolitical rivals are trying to escape.

What Is the Eurodollar System?

The term "eurodollar" refers to U.S. dollar deposits held at banks outside the United States. The market originated in the late 1950s when Soviet-bloc countries, wary of having dollar reserves frozen in American banks, deposited them in London and Paris instead. From roughly $1 billion at inception, the market grew to $200 billion by the early 1970s, $1.7 trillion by the late 1980s, and over $14 trillion today.

Eurodollars are not a separate currency. They are regular U.S. dollars that happen to be held, lent, and borrowed outside U.S. jurisdiction. Because they sit beyond the Federal Reserve's direct regulatory reach, eurodollar banks historically operated without U.S. reserve requirements or interest rate ceilings. This freedom made offshore dollar banking faster, cheaper, and more flexible than its onshore counterpart, fueling global trade and capital flows.

The system also created fragility. During the 2008 financial crisis, European banks that had built massive dollar-denominated balance sheets found themselves unable to roll over short-term dollar funding. The Federal Reserve responded with emergency swap lines to foreign central banks, effectively acting as lender of last resort for an offshore dollar system it did not regulate. In March 2020, the same pattern repeated: a dollar funding squeeze forced the Fed to reactivate swap lines within days of the COVID-19 market crash.

The dollar paradox: The United States prints about 4% of global GDP, but the dollar denominates roughly 58% of global foreign exchange reserves, 88% of foreign exchange transactions, and over 60% of international debt issuance. This gap between domestic output and global usage creates persistent demand for offshore dollars that the U.S. banking system alone cannot satisfy.

Why There Is a Dollar Shortage

The structural dollar shortage is not a temporary liquidity squeeze. It reflects a fundamental mismatch: the world's demand for dollar-denominated assets and settlement consistently exceeds the supply of dollars available through traditional banking channels.

Correspondent Banking Is Contracting

The plumbing that delivers dollars to the rest of the world is shrinking. According to BIS data, active correspondent banking relationships declined approximately 25% between 2011 and 2020. The contraction is worst in the regions that need dollar access most: the Americas (excluding North America) lost nearly 40% of relationships, and Small Island Developing States lost 41%.

The cause is primarily economic. Anti-money-laundering compliance costs have risen to over $25 billion annually across the global banking industry, making low-volume corridors unprofitable. A World Bank survey found that 37% of banks cited insufficient business volume to justify compliance costs as the primary reason for exiting correspondent relationships. The result: fewer banks handling more traffic, with 15 jurisdictions left with fewer than 20 active correspondent relationships by 2018.

Emerging Market Dollar Demand Is Growing

Dollar-denominated credit to emerging market and developing economies reached $4.3 trillion at end-2025, up 35% from $3.2 trillion a decade earlier. Africa and the Middle East saw the fastest regional growth at 16-17% year-over-year. Yet the correspondent banking infrastructure serving these regions is contracting. Africa alone loses an estimated $5 billion annually to correspondent banking fees and settlement delays, according to the Chartered Institute of Bankers of Nigeria.

Sub-Saharan African remittance fees average 8-8.5%, nearly triple the UN's 3% target. Some intra-African corridors are worse: a $200 transfer from South Africa to Malawi has historically incurred fees approaching 24%. Meanwhile, remittance flows to low- and middle-income countries exceeded $700 billion in 2024, surpassing combined foreign direct investment and official development assistance.

How Stablecoins Fill the Gap

Enter stablecoins: tokenized representations of fiat currency, overwhelmingly U.S. dollars, that circulate on public blockchains. By mid-2026, the total stablecoin supply exceeded $320 billion, dominated by USDT (Tether, ~$187 billion) and USDC (Circle, ~$78 billion), which together control roughly 90% of the market.

The functional parallel to eurodollars is direct. Both are privately issued, dollar-denominated liabilities circulating outside the U.S. banking system. Both emerged from regulatory arbitrage and market demand. Both extend the dollar's reach into markets that onshore banking does not serve well. And both, at sufficient scale, create systemic significance that regulators cannot ignore.

The Key Differences

The scale difference is important context: stablecoins remain roughly 2% the size of the traditional offshore dollar market. But the growth rate is striking. Stablecoins grew from $4 billion in early 2020 to over $320 billion by mid-2026, roughly an 80x increase. On-chain stablecoin transaction volume hit $33 trillion in 2025, approaching Visa's annual payment volume.

Where Stablecoins Are Adopted: The Emerging Market Story

Stablecoin adoption concentrates precisely where the dollar shortage is most acute. Over 80% of stablecoin transactions occur outside the United States. Approximately 66% of total stablecoin supply is held in emerging markets.

The Chainalysis 2025 Global Adoption Index documented regional growth rates of 63% in Latin America and 52% in Sub-Saharan Africa. Country-level data tells the story more vividly:

• Argentina: 61.8% of all crypto transactions involve stablecoins, used primarily as an inflation hedge against the peso
• Brazil: over 90% of crypto flows are stablecoin-related, with $318 billion in stablecoin transaction volume
• Nigeria: nearly $22 billion in crypto volume between July 2023 and June 2024, ranked 6th globally in adoption
• Turkey: projected 26 million stablecoin users by 2026
• Vietnam: 21% of the population using stablecoins

A Castle Island Ventures survey of 2,500 users across Nigeria, India, Turkey, Indonesia, and Brazil found that "saving in dollars" was the second most popular use case overall and the number-one goal in Nigeria. This is not speculative DeFi activity. It is spontaneous dollarization driven by individuals seeking to preserve purchasing power in currencies that their central banks cannot stabilize.

Stablecoins as Treasury Demand Engines

The relationship between stablecoins and U.S. Treasury securities is mechanical, not discretionary. When a user buys $100 in USDT, Tether must purchase approximately $100 in reserve assets to back the token. Under the GENIUS Act (signed into law July 18, 2025), permissible reserve assets are restricted to U.S. dollars, Treasury securities with remaining maturity of 93 days or less, overnight reverse repos collateralized by Treasuries, and money market funds invested in those same instruments.

This creates a direct pipeline from global dollar demand to U.S. government debt:

• Tether held $117 billion in direct Treasury bill holdings and $24 billion in Treasury-collateralized repos as of Q1 2026, making it the 17th largest holder of U.S. Treasuries globally, ahead of Germany and South Korea
• Circle held approximately 80% of its ~$78 billion reserves in Treasuries, managed through a SEC-registered money market fund run by BlackRock and custodied at BNY Mellon
• Combined stablecoin issuer Treasury exposure exceeds $190 billion

Treasury Secretary Scott Bessent stated at a June 2025 Senate hearing that the stablecoin market could reach $2 trillion by 2028, creating equivalent demand for U.S. Treasury bills. At a White House crypto summit in March 2025, he was more direct: "We are going to keep the U.S. dollar the dominant reserve currency in the world, and we will use stablecoins to do that."

The Treasury flywheel: Brookings research found that a $3.5 billion inflow into stablecoins lowers 3-month Treasury bill yields by approximately 0.7 basis points on impact, and up to 4 basis points within 10 days. This means stablecoin growth actively reduces U.S. government borrowing costs: a dynamic that aligns Treasury Department interests with stablecoin expansion.

The Policy Landscape: Codifying Digital Dollars

The GENIUS Act represents the first comprehensive U.S. federal framework for stablecoins. It passed the Senate 68-30 on June 17, 2025, and the House 308-122 on July 17, 2025, with bipartisan support. Key provisions include:

• Full 1:1 reserve backing required, restricted to high-quality liquid assets (Treasuries, cash, overnight repos)
• Issuers above $10 billion in outstanding supply fall under federal banking supervision (OCC or Fed)
• Monthly public reserve disclosures with independent auditor attestation
• Stablecoins explicitly classified as neither securities nor commodities
• Foreign issuers must register with the OCC and demonstrate comparable home-country regulation

In Europe, the MiCA regulation takes a different approach, placing caps on daily transaction volumes for large non-EU currency stablecoins. ECB President Christine Lagarde warned in a May 2026 speech that Europe faces "digital dollarization and a loss of monetary sovereignty" if it fails to develop alternatives, noting that 98% of stablecoins are dollar-denominated and 90% are controlled by just two issuers.

The Risks: What Could Go Wrong

Run Risk and Redemption Fragility

Stablecoins promise par redemption but operate without deposit insurance, lender-of-last-resort access, or orderly resolution regimes. Historical de-peg events demonstrate the vulnerability: USDT traded as low as $0.90 during processing delays in October 2018; USDC fell to $0.87 in March 2023 after Circle disclosed $3.3 billion in reserves held at the failing Silicon Valley Bank.

The Bank Policy Institute identified a structural problem: Tether maintains only 882 verified direct redemption accounts worldwide, with a $100,000 minimum threshold. Circle operates 1,834 direct accounts. Most stablecoin holders redeem through secondary markets, not directly from the issuer, creating a first-mover dynamic during stress events that could amplify instability.

Illicit Finance and Sanctions Evasion

According to the Chainalysis 2026 Crypto Crime Report, stablecoins accounted for approximately 84% of all illicit cryptocurrency transaction volume in 2025. Total illicit crypto flows reached $154 billion, a 162% year-over-year increase, with value received by sanctioned entities surging 694%. The same properties that make stablecoins useful for legitimate cross-border payments (speed, low cost, pseudonymity) also make them attractive for sanctions circumvention.

Monetary Sovereignty Erosion

For emerging market central banks, widespread stablecoin adoption is a double-edged sword. While it provides citizens with dollar access, it also weakens domestic monetary policy transmission. The IMF warned in December 2025 that stablecoins "may contribute to currency substitution and increase capital flow volatility," with risks "more pronounced in countries experiencing high inflation, weaker institutions, or diminished confidence in the domestic monetary framework."

Standard Chartered projected that dollar-backed stablecoins could pull $1 trillion from emerging-market bank deposits over three years across 16 vulnerable countries including Egypt, Pakistan, Turkey, and Nigeria. ECB Executive Board member Isabel Schnabel cautioned that stablecoin adoption creates a "vicious circle" in countries with weak policy credibility: as citizens gravitate toward dollar alternatives, central banks lose the ability to implement domestic monetary policy, further undermining confidence in local currency.

The De-Dollarization Counterargument

Some argue stablecoins are a temporary phenomenon that will fade as central bank digital currencies (CBDCs) mature or as BRICS nations develop alternative payment infrastructure. The evidence so far does not support this view. China's e-CNY, despite 3.5 billion cumulative transactions worth 16.7 trillion yuan ($2.4 trillion), represents only 0.2% of total digital payments in China, unable to displace entrenched platforms like Alipay and WeChat Pay. The dollar's share of stablecoins has held at 97-99% for the market's entire history: a persistence that suggests organic global demand for dollar exposure rather than a temporary arbitrage.

Stablecoins vs. Eurodollars: The Structural Comparison

Who Is Making This Argument

The "stablecoins as new eurodollars" thesis has moved from academic framing to policy consensus. Federal Reserve Governor Christopher Waller stated in February 2025 that "stablecoins have the potential to maintain and extend the role of the dollar internationally," noting they could be "particularly appealing to those in high-inflation countries or to those without easy or affordable access to dollar cash or banking services."

Tether CEO Paolo Ardoino has described USDT as "the last stronghold for U.S. dollar hegemony" in emerging markets. Austin Campbell, professor at NYU Stern and former head of portfolio management at Paxos, has argued on the Mercatus Center podcast that "the entire eurodollar market is moving to stablecoins" over the next two decades, noting that 95% of stablecoin holders are non-U.S. persons.

Academic research has formalized the comparison. Elkamhi and Lee's 2025 paper "Stablecoins as Eurodollars 2.0" on SSRN proposes a framework linking on-chain payment liabilities to off-chain reserve portfolios, arguing stablecoins are "offshore dollars redesigned for continuous, programmable settlement." The BIS published a complementary analysis in Working Paper No. 1146, finding that "on-chain stablecoins are like offshore eurodollars" but warning that the liquidity infrastructure required for par settlement sustainability has not yet matured.

Dollar Access on Bitcoin Infrastructure

Most stablecoins today circulate on Ethereum and Tron, which together host over 80% of stablecoin supply. But the thesis of digital dollars filling the eurodollar gap extends to Bitcoin-native infrastructure as well. Spark's USDB, issued by Brale (a FinCEN-registered, 48-state-licensed Money Services Business), is a fully backed stablecoin operating natively on Spark, a Bitcoin Layer 2 protocol. Reserves consist of short-duration U.S. Treasury bills and cash equivalents held in segregated, bankruptcy-remote accounts, with monthly audits and daily public attestations.

For users in underserved markets seeking dollar-denominated payments on Bitcoin rails, this represents an alternative to the Ethereum and Tron ecosystems that dominate stablecoin issuance today. Transfers on Spark settle in sub-seconds with zero fees for on-network transactions, preserving self-custody throughout. Users can hold and transfer dollars without a traditional banking relationship, using Bitcoin's security model as the settlement layer.

Wallets built on Spark, such as General Bread, demonstrate what this looks like in practice: a mobile experience where users can hold both BTC and dollar-denominated stablecoins in a single self-custodial wallet. For developers building dollar access into their own applications, the Spark SDK provides the infrastructure to integrate stablecoin transfers directly.

What Comes Next

The stablecoin market is on a trajectory that looks increasingly like the early eurodollar market: rapid, organic growth driven by real economic demand rather than policy design. Citigroup projects stablecoin supply could reach $1.6 trillion by 2030 in its base case, or $3.7 trillion in a bull case. Standard Chartered forecasts $2 trillion by 2028. State Street projects the market could exceed $3 trillion by 2030. At those scales, stablecoin issuers would hold more U.S. Treasuries than most sovereign nations.

The policy response will determine whether stablecoins become a stabilizing extension of dollar infrastructure or a source of new systemic risk. The GENIUS Act represents a bet on the former: regulating stablecoins into the dollar system rather than fighting them. Europe's MiCA represents a more defensive posture. Emerging market central banks face the hardest choice: embrace stablecoins as a supplement to inadequate banking infrastructure, or resist them to preserve monetary sovereignty.

What is clear is that the demand driving stablecoin growth is not going away. People outside the United States want dollars. Traditional banking is not delivering them fast enough, cheaply enough, or broadly enough. Stablecoins are filling that gap in the same way eurodollars did a generation ago: imperfectly, with real risks, but with a momentum that policy cannot easily reverse.

For a deeper look at how stablecoin payment rails compare to traditional systems, or to explore how global dollar demand shapes stablecoin markets, see our related research.

This article is for educational purposes only. It does not constitute financial or investment advice. Bitcoin and Layer 2 protocols involve technical and financial risk. Always do your own research and understand the tradeoffs before using any protocol.