The dollar’s dominance has survived its de-pegging from gold, decades of deteriorating fiscal discipline by the U.S. government, and active efforts by criminals, terrorists, and foreign governments to find alternative forms of payment. That dominance has kept the United States’ borrowing costs manageable as its debts mount. But now this central pillar of U.S. economic stability and geopolitical influence faces a fresh challenge from digital alternatives.

During his first term, U.S. President Donald Trump often called the cryptocurrency industry a scam. By now, however, his family has plunged money into it—and his administration has bet that so-called U.S. dollar stablecoins, or privately issued cryptocurrencies regulated by the U.S. government and backed primarily by cash and other safe dollar assets, can reinforce the dollar’s role as the world’s primary reserve currency. After backing last summer’s passage of the Genius Act, which sets out a regulatory framework for dollar stablecoins, Trump has championed the United States as a world leader in the industry.

Unbacked cryptocurrencies can be volatile, limiting their uptake. But stablecoins, which emerged about a decade ago, promise to reduce this risk, lower transaction costs for multinational firms, and offer financial services to people who cannot otherwise access bank accounts. If the stablecoin market expands dramatically and remains dollar-denominated (increasing demand for U.S. debt), that, in turn, could reinforce dollar dominance and the substantial power it affords the United States. It would make U.S. financial sanctions more effective and cement Washington’s influence in setting the standards for a new financial frontier.

But those benefits are not guaranteed as the stablecoin market grows. Dollar-denominated stablecoin issuers can be based anywhere, meaning that U.S. regulators will depend on the cooperation of a vast array of foreign counterparts to ensure that these new forms of dollars are just as trustworthy as bank deposits or good old cash. Enforcing regulations on stablecoins would be a mammoth task in the best of times, but it will be further complicated by the Trump administration’s policy unpredictability, hostile approach to trade, and distaste for regulation. Instead of collaborating with the United States to further entrench dollar dominance, even the friendliest U.S. allies may turn a blind eye to unscrupulous operators or undercut dollar stablecoins by giving preference to digital currencies issued by their own central banks. Unless Washington works deliberately and diligently to coordinate enforcement of U.S. rules, the technology may only accelerate the fragmentation of global financial markets.

Trump has advanced conflicting views on whether dollar dominance serves the U.S. national interest. During his 2024 presidential campaign, he argued that the dollar’s preeminent role as the world’s currency has distorted its exchange rate and hurt U.S. businesses’ competitiveness. Once he became president, he vowed to punish countries that tried to undermine the dollar’s dominance, although this so far remains an empty threat.

But markets, not individual leaders, largely determine which currencies offer the best store of value and most reliable means of exchange. The United States still boasts the deepest and most sophisticated financial markets, the world’s most innovative companies, and a largely independent set of courts and regulators, all of which continue to undergird........

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