Will onshore stablecoins save the U.S Dollar? New York’s AG urges Congress to act!

• NYAG warned that Bitcoin could threaten U.S dollar dominance and American interests
• She also urged careful consideration to ensure the dollar position through stablecoins

New York Attorney General (NYAG) Letitia James is the latest to raise concerns about Bitcoin’s [BTC] potential threat against the U.S. Dollar’s (USD) dominance. In a letter to Congress, she noted, 

“America should defend the prime position of the U.S. dollar for global transactions—a position that Bitcoin, which can instantly transfer value globally, threatens.”

James expressed concern that if Bitcoin sees widespread adoption, it could weaken American interests, including the effectiveness of U.S sanctions.

Stablecoin solution to BTC threat

To mitigate against this, she urged Congress to consider onshoring stablecoins issuers backed by U.S treasury bills and cash equivalents. This would allow issuers to be supervised under U.S. federal laws. 

According to the NYAG, offshore stablecoin issuers could falsify their financial health records and expose the U.S treasury market and banking system to contagion risks. She added,

“Regulators with supervision over stablecoin issuers must ensure that redemption requests do not create runs on the bank by requiring diversification of institutions where stablecoin deposits are held, diversification of deposit bases, and increased capital requirements.”

However, some market analysts and top business leaders believe BTC’s dominance against the U.S Dollar is inevitable. For example – In an annual report to investors, BlackRock’s CEO Larry Fink stated, 

“If the U.S. doesn’t get its debt under control, if deficits keep ballooning, America risks losing that position (global reserve currency) to digital assets like Bitcoin.”

Tariff wars fuel crypto fire

For his part, Jeff Park, head of Bitwise Alpha Strategies, noted that the ongoing tariff wars could bolster BTC’s position. 

“Higher chance Bitcoin survives over the dollar in our lifetime after today (renewed tariff wars).”

On the contrary, other market watchers view the push for U.S. domiciled stablecoins as a win for select products like RLUSD.

Stablecoins are backed 1:1 to reserve assets, like the U.S. Dollar, gold, etc. Tether’s USDT is the largest stablecoin by market cap and the seventh-largest U.S treasury bills buyer as of 2024. 

In fact, with the market expected to grow from $230 billion to $2.8 trillion by 2028, stablecoins could actually help strengthen the U.S. Dollar’s global dominance.

As a result, the U.S. House of Representatives and Senate have advanced two stablecoin bills from their respective committees to offer regulatory clarity to the sector.