Digital Assets and the Exorbitant Dollar Privilege

This paper analyzes how the rise of digital assets, particularly Stablecoins, affects the US dollar's dominance in global financial markets. It discusses whether Stablecoins, backed by US debt or other assets such as cryptocurrencies, could replace traditional US safe assets. On the one hand, Stablecoins could increase the demand for dollar reserves, strengthening the international role of the dollar. On the other hand, if Stablecoins are backed by non-dollar reserves, the global demand for dollars may decline, potentially reducing its international role.