From Dollar Dominance to Dollar Discontent

Although the U.S. dollar remains the dominant currency used in cross-border transactions, policymakers worldwide are increasingly uncomfortable with their financial dependence on the greenback. Their worries are heightened by developments such U.S. efforts to promote the issuance and use of dollar-linked stablecoins, which aspire to cement dollar dominance. This paper asks how countries, and Asian countries in particular, should respond to the challenge. It recommends a diversified strategy whereby governments and central banks explore the development of stablecoins linked to other currencies, link their fast-payment systems, pilot interoperable central bank digital currencies, and explore digital correspondent banking through tokenized bank deposits.