Impact Analysis of Stablecoin on National Economic Sovereignty

Abstract

Stablecoins have grown from experimental digital assets into globally significant financial instruments that challenge the foundations of national economic sovereignty. While early studies emphasized their efficiency and role in financial inclusion, recent research highlights their disruptive effects on sovereign debt markets, monetary and fiscal policy, and governments’ monopoly over currency issuance. This paper will analyze stablecoins disruptive effects on sovereign debt markets, monetary and fiscal policy, and governments’ monopoly over currency issuance detail. First, it finds that stablecoins compete with national bonds as alternative safe assets, with issuers like Tether already holding $33.1 billion in U.S. Treasuries, thereby reinforcing U.S. financial hegemony and raising borrowing risks for smaller economies. Second, stablecoins undermine monetary and fiscal policy by creating parallel liquidity channels and tax blind spots, which has led regulators ban interest payments on stablecoins, restrict transaction volumes, and prohibit redemption fees. Third, stablecoins erode the right of governments to issue currency, a challenge that can be met through the design and adoption of central bank digital currencies (CBDCs). The findings suggest that while stablecoins present risks to sovereignty, carefully designed policies can transform them into tools that strengthen national bond markets, preserve monetary stability, and modernize state monetary authority.