IDEAS home Printed from https://ideas.repec.org/p/fip/fedcwq/101529.html
   My bibliography  Save this paper

Tariffs, Stablecoins, and the Demand for Dollars

Author

Listed:
  • Anantha Divakaruni
  • Peter Zimmerman

Abstract

Several studies have shown that aggregate demand for US dollars fell following the announcement of tariffs by the US government on April 2, 2025. Using data on stablecoins as a proxy for dollar trading, we find that the decline in dollar demand is smaller for investors in countries that saw larger increases in tariffs. Our interpretation is that, as foreign investors anticipate that tariffs will make it more expensive to acquire US dollars in the future, they buy dollars today. This channel is stronger for more liquid stablecoins and for countries with tighter capital controls, consistent with the idea that, when actual dollars are hard to acquire, stablecoins may be regarded as a substitute. Our findings cast light on the effects of the tariffs on global foreign exchange markets, as well as on the degree to which stablecoins are considered a close substitute for dollars.

Suggested Citation

  • Anantha Divakaruni & Peter Zimmerman, 2025. "Tariffs, Stablecoins, and the Demand for Dollars," Working Papers 25-21, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwq:101529
    DOI: 10.26509/frbc-wp-202521
    as

    Download full text from publisher

    File URL: https://doi.org/10.26509/frbc-wp-202521
    File Function: Persistent link
    Download Restriction: no
    File URL: https://www.clevelandfed.org/-/media/project/clevelandfedtenant/clevelandfedsite/publications/working-papers/2025/wp2521.pdf
    File Function: Full text
    Download Restriction: no
    File URL: https://libkey.io/10.26509/frbc-wp-202521?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Zhengyang Jiang & Arvind Krishnamurthy & Hanno Lustig, 2021. "Foreign Safe Asset Demand and the Dollar Exchange Rate," Journal of Finance, American Finance Association, vol. 76(3), pages 1049-1089, June.
    2. Andrés Fernández & Michael W Klein & Alessandro Rebucci & Martin Schindler & Martín Uribe, 2016. "Capital Control Measures: A New Dataset," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 64(3), pages 548-574, August.
    3. Chordia, Tarun & Roll, Richard & Subrahmanyam, Avanidhar, 2002. "Order imbalance, liquidity, and market returns," Journal of Financial Economics, Elsevier, vol. 65(1), pages 111-130, July.
    4. Alberto Cavallo & Gita Gopinath & Brent Neiman & Jenny Tang, 2021. "Tariff Pass-Through at the Border and at the Store: Evidence from US Trade Policy," American Economic Review: Insights, American Economic Association, vol. 3(1), pages 19-34, March.
    5. Javier Bianchi & Louphou Coulibaly, 2025. "The Optimal Monetary Policy Response to Tariffs," NBER Working Papers 33560, National Bureau of Economic Research, Inc.
    6. Hyun Song Shin & Philip Wooldridge & Dora Xia, 2025. "US dollar's slide in April 2025: the role of FX hedging," BIS Bulletins 105, Bank for International Settlements.
    7. Makarov, Igor & Schoar, Antoinette, 2020. "Trading and arbitrage in cryptocurrency markets," LSE Research Online Documents on Economics 100409, London School of Economics and Political Science, LSE Library.
    8. Robert Minton & Mariano A. Somale, 2025. "Detecting Tariff Effects on Consumer Prices in Real Time," FEDS Notes 2025-05-09, Board of Governors of the Federal Reserve System (U.S.).
    9. Makarov, Igor & Schoar, Antoinette, 2020. "Trading and arbitrage in cryptocurrency markets," Journal of Financial Economics, Elsevier, vol. 135(2), pages 293-319.
    10. Clemens M. Graf von Luckner & Mr. Robin Koepke & Ms. Silvia Sgherri, 2024. "Crypto as a Marketplace for Capital Flight," IMF Working Papers 2024/133, International Monetary Fund.
    11. Syrstad, Olav & Viswanath-Natraj, Ganesh, 2022. "Price-setting in the foreign exchange swap market: Evidence from order flow," Journal of Financial Economics, Elsevier, vol. 146(1), pages 119-142.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chen, Meichen & Qin, Cong & Zhang, Xiaoyu, 2022. "Cryptocurrency price discrepancies under uncertainty: Evidence from COVID-19 and lockdown nexus," Journal of International Money and Finance, Elsevier, vol. 124(C).
    2. Borri, Nicola & Shakhnov, Kirill, 2023. "Cryptomarket discounts," Journal of International Money and Finance, Elsevier, vol. 139(C).
    3. Foley, Sean & Frijns, Bart & Garel, Alexandre & Roh, Tai-Yong, 2022. "Who buys Bitcoin? The cultural determinants of Bitcoin activity," International Review of Financial Analysis, Elsevier, vol. 84(C).
    4. Maik Schmeling & Andreas Schrimpf & Karamfil Todorov, 2023. "Crypto carry," BIS Working Papers 1087, Bank for International Settlements.
    5. Arkorful, Gideon Bruce & Chen, Haiqiang & Gu, Ming & Liu, Xiaoqun, 2023. "What can we learn from the convenience yield of Bitcoin? Evidence from the COVID-19 crisis," International Review of Economics & Finance, Elsevier, vol. 88(C), pages 141-153.
    6. Emilio Barucci & Giancarlo Giuffra Moncayo & Daniele Marazzina, 2023. "Market impact and efficiency in cryptoassets markets," Digital Finance, Springer, vol. 5(3), pages 519-562, December.
    7. Chen, Yu-Lun & Xu, Ke & Yang, J. Jimmy, 2025. "Market impact of the bitcoin ETF introduction on bitcoin futures," International Review of Financial Analysis, Elsevier, vol. 97(C).
    8. Emilio Barucci & Giancarlo Giuffra Moncayo & Daniele Marazzina, 2022. "Cryptocurrencies and stablecoins: a high-frequency analysis," Digital Finance, Springer, vol. 4(2), pages 217-239, September.
    9. Giménez Roche, Gabriel A. & Noël, Antoine & Sauce, Loïc, 2025. "Bitcoin trade volume in decentralized markets: International evidence," Technological Forecasting and Social Change, Elsevier, vol. 214(C).
    10. Kim, Jinhwan & Olbert, Marcel, 2022. "How does private firm disclosure affect demand for public firm equity? Evidence from the global equity market," Journal of Accounting and Economics, Elsevier, vol. 74(2).
    11. Martin Angerer & Marius Gramlich & Michael Hanke, 2025. "Order Book Liquidity on Crypto Exchanges," JRFM, MDPI, vol. 18(3), pages 1-29, February.
    12. Hanna Halaburda & Guillaume Haeringer & Joshua Gans & Neil Gandal, 2022. "The Microeconomics of Cryptocurrencies," Journal of Economic Literature, American Economic Association, vol. 60(3), pages 971-1013, September.
    13. Guo, Weiwei & Intini, Silvia & Jahanshahloo, Hossein, 2025. "Bitcoin arbitrage and exchange default risk," Finance Research Letters, Elsevier, vol. 71(C).
    14. Guo, Li & Sang, Bo & Tu, Jun & Wang, Yu, 2024. "Cross-cryptocurrency return predictability," Journal of Economic Dynamics and Control, Elsevier, vol. 163(C).
    15. Chen, Bin-xia & Sun, Yan-lin, 2024. "Risk characteristics and connectedness in cryptocurrency markets: New evidence from a non-linear framework," The North American Journal of Economics and Finance, Elsevier, vol. 69(PA).
    16. Uhlig, Harald & Xie, Taojun, 2020. "Parallel Digital Currencies and Sticky Prices," CEPR Discussion Papers 15619, C.E.P.R. Discussion Papers.
    17. Dunbar, Kwamie & Owusu-Amoako, Johnson, 2022. "Cryptocurrency returns under empirical asset pricing," International Review of Financial Analysis, Elsevier, vol. 82(C).
    18. KOUAKOU, Thiédjé Gaudens-Omer, 2025. "Volatilité et régulation des cryptomonnaies : approche monétaire orthodoxe versus approche monétaire hétérodoxe [Volatility and regulation of cryptocurrencies: orthodox monetary approach versus het," MPRA Paper 123774, University Library of Munich, Germany.
    19. Serdar Neslihanoglu, 2021. "Linearity extensions of the market model: a case of the top 10 cryptocurrency prices during the pre-COVID-19 and COVID-19 periods," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-27, December.
    20. Divakaruni, Anantha & Zimmerman, Peter, 2023. "The Lightning Network: Turning Bitcoin into money," Finance Research Letters, Elsevier, vol. 52(C).

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedcwq:101529. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: 4D Library (email available below). General contact details of provider: https://edirc.repec.org/data/frbclus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.