Stablecoin Regulations Would Boost the US Dollar: BlackRock

$12.5 trillion asset manager BlackRock has nodded to the growing narrative that stablecoins will boost the US dollar’s market dominance.

Analysts at the largest asset manager in the world shared in a weekly market commentary that stablecoins are a step in the right direction for the US dollar. This is because it would expose the titan fiat currency to new international use cases.

BlackRock strategists shared the view on the back of the new stablecoin regime in the United States. For context, a bipartisan effort in Congress ensured the passage of the GENIUS Stablecoin Act, the first federal crypto bill ever passed in the US, early this month.

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GENIUS Act: A Dual Boost for the United States

The stablecoin market is slowly making its mainstream debut following the recent institutional interest in the sector. Notably, the stablecoin market cap has grown exponentially over the years, moving from under $50 billion in 2021 to $273 billion.

Meanwhile, the recently passed GENIUS Act provides a clear regulatory framework for the sector, including precise guidelines for issuers on reserve allocation. BlackRock strategists highlighted that the mandate for issuers to hold their reserves in the US Treasury bills, repurchase agreements, and money market funds will boost the demand for these investment vehicles.

For context, Tether and Circle, the two largest issuers, hold a combined $120 billion in Treasury bills. While this accounts for only about 2% of the Treasury’s $6 trillion market, the explosive growth by these issuers and increasing demand for stablecoins suggest this percentage will increase over time.

New International Use Case to Elevate US Dollar Dominance

For one, the US dollar dominates every other fiat currency, with perceived stability fueling its preference in international trade settlements. With cryptocurrencies, particularly Bitcoin, emerging as a strong competitor, US dollar-pegged stablecoins offer a lifeline for fiat currency.

BlackRock highlighted that tokenized forms of the US dollar would bolster the dollar’s dominance, especially as institutional transactions are coming on-chain. This enhances the US dollar’s use case in the digital scene, as it can still play a role in international payments.

Moreover, the United States’s first-mover advantage in endorsing the tokenized US dollar means that users can get easy access to the fiat currency over other volatile currencies. However, BlackRock noted that the ban on interest payments by issuers could hurt adoption in major economies.

Interestingly, BlackRock stated that stablecoins are a part of the future of finance, and the United States’ early dabbling reinforces its leadership in the nascent digital asset technology. Furthermore, Bitcoin would also play a crucial role in this future, but BlackRock suggested a distinct role as a driver of risk and returns.