Are stablecoins already delivering what CBDCs promise?

Many proposals for a central bank digital currency (CBDC), a digital form of the US dollar issued by the Federal Reserve, have circulated in recent years. For now, the creation of a US CBDC is prohibited through 2030 under the 21st Century ROAD to Housing Act. That deadline, however, leaves the long-term question of a US CBDC unresolved.

Proposals for a CBDC often start from the assumption that the government must play a central role in the future of digital money. A greater government role could also introduce concerns about cybersecurity, financial privacy, and the potential to crowd out private-sector alternatives.

Stablecoins, privately issued digital currencies, suggest otherwise. The biggest obstacle facing any new digital currency is not technology but adoption. Americans already have access to cash, debit cards, credit cards, bank transfers, and payment apps. To convince people to switch, a new form of money must provide clear benefits. Stablecoins may be better positioned than a CBDC to meet that challenge. They already satisfy money’s core functions while preserving consumer choice and encouraging private-sector innovation.

At its core, money is useful because it performs a few essential functions. It helps people measure value, store purchasing power, and exchange goods and services. Economists refer to these functions as a unit of account, a store of value, and a medium of exchange.

Stablecoins satisfy the three core functions of money. As a unit of account, they are typically pegged to the US dollar. This allows economic value to be measured in familiar and widely accepted terms. Stablecoins also serve as a store of value. They are designed to maintain a stable value through reserve backing. Finally, stablecoins function as a medium of exchange. They allow users to transfer funds quickly and, in many cases, across borders with fewer intermediaries. Taken together, these features suggest that stablecoins are more than just digital payment tools. They increasingly embody the qualities that give money its value and usefulness.  

These benefits are not purely theoretical. In countries experiencing high inflation or currency instability, dollar-denominated stablecoins can provide access to a more reliable store of value. Venezuela offers one example. As high inflation has eroded the purchasing power of the bolívar, Venezuelans have increasingly turned to dollar-denominated stablecoins to preserve value and make everyday payments. In practice, this gives individuals another way to hold and spend money without relying entirely on a rapidly depreciating local currency. Rather than replacing strong currencies – like the US dollar – stablecoins can complement them by expanding access to dollar-denominated assets. In fact, roughly 99 percent of stablecoins are currently denominated in US dollars.

If stablecoins already perform money’s core functions, the more important question is no longer whether they work but whether a CBDC is necessary at all. CBDC advocates often argue that a CBDC could improve payment efficiency, reduce transaction costs, and expand access to financial services. Yet many of these benefits are already emerging through private-sector innovation.

Stablecoins may also offer advantages that differ from those of a CBDC. They expand consumers’ options for making payments without requiring the government to play a larger role in the financial system. Individuals can choose between cash, bank deposits, payment apps, and stablecoins depending on their needs. Stablecoins can coexist with cash and bank deposits as part of an evolving payments ecosystem.

Some economists have proposed narrow stablecoins as a CBDC alternative. Under this approach, these stablecoins would be fully backed by safe and liquid reserve assets. This structure could provide many benefits CBDC supporters seek, including greater stability and credibility. At the same time, it would preserve private issuance and market competition.

The GENIUS Act reinforces the idea that private stablecoins can play a meaningful role in the future of digital payments. By creating a regulatory framework for stablecoins, policymakers have acknowledged that private issuers can provide digital dollar services within an established legal framework.

The growth of stablecoins demonstrates that digital payment innovation does not have to originate with the government. Many of the benefits often associated with digital currencies may not require direct government provision. As digital payments continue to evolve, policymakers should carefully consider the role that stablecoins can play in that future.