The Dollar’s Immortality Machine

Why USD stablecoins might buy America another century of reserve currency dominance

Here’s a question that occurred to me while reading the Bank of England’s freshly published stablecoin policy statement last week:

Why can’t the Bank of England just deploy a GBP stablecoin themselves?

Technically, it’s an afternoon’s work. Deploy an ERC-20 contract cloned from Paxos, spin out a wallet, and you’re done. What’s stopping them?

The answer leads somewhere far more interesting than the technology.

What the BoE published (and what they didn’t)

On 22 June 2026, the BoE published its policy statement and draft Code of Practice for sterling-denominated systemic stablecoins. It’s a very serious document with very detailed backing asset requirements, redemption obligations, liquidity facilities, capital rules, and lots of other fun stuff that gives Harry Potter and the Solace of Quantitative Easing a run for its money.

The market they’re regulating is (wait for it):

Three viable GBP stablecoins. The largest has a market cap of $16 million. The other two, between them, would struggle to fill a mid-range car park.

The BoE has spent three years building a regulatory framework for this teeny tiny space.

The global stablecoin market that they’re carefully not regulating is $315 billions of moulah, denominated almost entirely in US dollars.

The BoE’s model, to be clear, is not “we will issue a GBP stablecoin.” It’s “private non-bank firms must issue GBP stablecoins under our rules, backed partly by reserves held directly at the Bank.”

The BoE sits in the background as a regulator, liquidity backstop, and implicit guarantor, but the liability sits with the private issuer. Which raises the obvious question: why the indirection?

If what you want, what you really, really want is a GBP stablecoin, why not just make one?

The tautology at the heart of central banking

Here’s the common intuition about why backing matters for stablecoins: you need real assets behind the coin, otherwise it’s worthless.

That’s true for private issuers, but it’s a tautology for central banks. Seriously, go back and read that again. A central bank can back its stablecoin without assets.

The Bank of England fiver in your wallet reads “I promise to pay the bearer on demand the sum of five pounds.” That promise was meaningful when pounds were convertible to gold or silver. Since Bretton Woods collapsed in 1971, it has meant “I promise to give you another five pound note.” The obligation is circular, and so the BoE cannot default on a sterling liability, because it is the sole issuer of the very thing the liability is denominated in.

It may sound crazy, but it is not a loophole or a technicality. It’s the foundational operating principle of every modern fiat currency “backed” by every central bank. The backing is the state’s ability to enforce the currency as legal tender. And that’s what it is, and all it is.

The European Central Bank has spent considerable energy explaining why Bitcoin is worthless because it isn’t backed by anything. This is, to put it diplomatically, an observation that applies with equal force to the euro. The ECB is not backed by gold, silver, or any commodity. It is backed by the collective institutional authority of nineteen governments and the European Central Bank’s own credibility, which is to say, it is backed by the same thing Bitcoin’s critics claim doesn’t exist.

I genuinely don’t know how they keep a straight face.

So when the BoE says a GBP stablecoin issued by a private firm needs to hold 30% of its backing assets as direct deposits at the Bank of England, that can’t be primarily about credit risk. It’s about liquidity.

Credit risk is the risk that your counterparty won’t pay you back. Liquidity risk is that they can’t turn their assets into cash fast enough to meet their obligations to you, even if they’re technically solvent. One can own a house worth £500,000 and still be unable to pay a £1,000 heating bill that is due tomorrow morning.

The gilt (that’s the UK’s equivalent of a US treasury bond) portion of a stablecoin’s reserves carries liquidity risk. UK government bonds are the safest non-central-bank asset in sterling, but they have to be sold into a market to become pounds, and markets can seize up. The 2022 LDI crisis (did you notice it?) was this exact failure: technically solvent pension funds couldn’t liquidate gilts fast enough under stress without cratering the price of those gilts.

The reserves held directly at the BoE, on the other hand, carry no liquidity risk at all. They are already pounds, at the most fundamental level that exists. A pound held in the BoE is the most poundly pound that a pound has ever been.

This BoE backstop liquidity facility, which would be available to stablecoin issuers in times of stress, is the circuit breaker. Instead of forcing a distressed issuer to sell gilts or some even less liquid asset into a falling market, the BoE promises to lend against those gilts as collateral. There’s no forced selling, and hence no downward spiral of financial doom. This is the same mechanism the BoE uses to stabilize banks. Isn’t financial wizardry wonderful?

The private issuer model is therefore not an accident or a regulatory cop-out. It’s a deliberate architecture: keep the liability off the BoE’s balance sheet while extending the BoE’s stabilisation infrastructure to cover the liability. The issuer takes the counterparty risk, and the BoE promises to manage the systemic risk. That way, everyone who cares is happy. The rest of us remain blissfully ignorant as we use our pounds to buy marmite and bread.

The part nobody is saying out loud

Forget the £16 million. I think it’s time to consider the $315 billion.

After the Second World War, when America became Top Nation and the dollar’s reserve currency status was established and then fortified over the following decades, a financial architecture was established by building on three pillars: the Bretton Woods agreement (and its aftermath, which locked oil pricing into dollars via Saudi Arabia), the depth and liquidity of US capital markets, and the US military’s role as global security guarantor. All three are under more pressure now than at any point since 1971.

And yet USDT and USDC are quietly building a fourth pillar that none of those in government expected or felt like promoting.

A merchant in Lagos, a contractor in Manila, a small trading firm in Istanbul: none of them have US bank accounts. None of them can easily access the dollar-denominated financial system. But what they can do is hold USDT on a smartphone, or settle invoices in USDC at 2am on a Sunday, and move value across borders without a correspondent bank, a SWIFT message, or a three-day clearing window.

This is dollar colonization at a pace that Citibank could never achieve, and at a cost that makes traditional correspondent banking look like an extravagant week in the Empathy Suite in Las Vegas. The infrastructure requires no US regulatory approval to use, no account opening process, and no KYC relationship with a US institution. All you need is a wallet address.

The difference between this and traditional dollar hegemony is not technical. It’s economic and political. Specifically, it’s based on the fact that the US government gets the geopolitical benefit of dollar adoption without having done any of the regulatory work, taking on the liability, or even particularly noticed it was happening.

Whether this continues depends partly on whether the US formalizes and extends this advantage (the GENIUS Act suggests they may have begun to realize what they have), and partly on whether any other currency can mount a credible challenge at scale.

In the meantime, other jurisdictions such as the United Kingdom and the European Union appear to be doing whatever they can to throw away any blockchain-based advantage they could potentially seize.

Why consumers don’t want a drawer full of stablecoins

Here’s the problem facing every non-dollar stablecoin, including the BoE’s carefully designed GBP version.

Payments are winner-take-most markets. VISA won not because it was technically superior to every alternative, but because everyone accepted it, and that made everyone else accept it. A GBP stablecoin is only useful if merchants will take it, which requires consumer adoption, and that requires merchant acceptance. You can’t bootstrap both sides of this simultaneously without either a dominant incumbent forcing adoption or a regulatory mandate.

The BoE has neither the will nor the legal power to mandate adoption.

Meanwhile, UK consumers already have Faster Payments: a domestic payment infrastructure that settles in seconds for free. Not as cheap and efficient as mobile payments in India, but it works. The consumer case for “but also a stablecoin” is weak in the UK domestic context in a way that it simply isn’t in markets with dysfunctional banking infrastructure.

The BoE knows this. The phrase “multi-money system” appears throughout their documentation: stablecoins are listed alongside tokenised bank deposits and possibly a digital pound. But consumers don’t experience money as a taxonomy. They experience it as a number in an app. The abstraction layer that hides the underlying instrument is doing all the work.

The realistic adoption path for GBP stablecoins is therefore not a consumer product. It’s invisible wholesale infrastructure: a trading firm settling a cross-border transaction, a bank clearing tokenized securities, and perhaps a payment processor reducing its overnight exposure. Consumers see pounds, and the stablecoin lives in the plumbing.

That’s not a bad outcome. It’s just not the outcome that addresses the underlying geopolitical problem, because if the stablecoin is invisible to the consumer, the consumer doesn’t care what currency it’s denominated in. They care what currency their balance is displayed in. And their balance is displayed in pounds, dollars, euros or whatever the interface shows them. The wholesale instrument could be anything.

Which is to say: even if GBP stablecoins succeed by the BoE’s own definition, they won’t dent dollar dominance at all.

The sovereign debt question the stablecoin discussion keeps bumping into

If the dollar’s reserve status allows the US to borrow at low rates indefinitely (and that’s because global demand for dollar-denominated assets is structurally elevated), and stablecoins are now extending and deepening that status into digital settlement rails globally, does that runway ever end?

The traditional view says yes: debt must eventually be serviced from tax revenue, and if it grows faster than the economy indefinitely, confidence collapses. The 2022 Truss mini-budget was a warning sign (see, she wasn’t completely useless, but rather an expensive education in the equivalent of gravity in economics). The UK didn’t become mathematically insolvent overnight, but the market’s confidence in fiscal credibility cracked within days and the feedback loop became dangerous fast.

The challenge to that view is Japan, which has debt north of 200% of it’s GDP and yet continues to function. Olivier Blanchard, who we probably can’t dismiss as a crank, as he was the former chief economist of the IMF, has been arguing publicly for years that if the growth rate exceeds the interest rate on debt, the debt-to-GDP ratio shrinks automatically without a primary surplus. It may sound crazy, but you can continue to borrow indefinitely under such conditions.

Modern Monetary Theory (sorry, I just vomited a bit in my mouth) takes this further: the sovereign issuer of a currency never needs to “borrow” in the conventional sense at all. Gilt issuance is better understood as the government offering the private sector an interest-bearing alternative to holding reserves. The constraint isn’t solvency. It’s inflation. You can create money until you hit productive capacity limits, at which point prices rise. The question is how quickly that constraint bites, and reasonable economists disagree sharply on the answer.

What stablecoins change is the demand curve for dollar assets globally. If every small merchant in the developing world is settling transactions in USDT, the structural demand for dollar-denominated instruments is higher than it would otherwise be. That suppresses US borrowing costs at the margin. It’s not a magic trick, It’s the same mechanism that the petrodollar recycling system operated on, extended to retail settlement globally. In other words, it’s a new way to leverage the power of being the most popular currency on the planet through efficiency and accessibility, to the immense benefit of that currency. Did the pound and the euro miss a trick, or what?

I genuinely don’t know where the limit on borrowing against the future is through all this chicanery. Neither does anyone else, and anyone who claims otherwise is selling something.

What the BoE is actually betting on

I’ll put it bluntly: building a detailed regulatory framework for a £16,000,000 market is either visionary or delusional. The BoE’s bet is that getting the rules right now shapes who wins when the market is real, and that regulatory clarity is itself the asset that attracts issuers and investment.

I’d like to think that they’re smart, and that it’s not an unreasonable bet. The EU’s MiCA framework arrived first, covers a 450-million person market, and is already drawing some stablecoin issuers to establish EU operations. Perhaps the UK watched that happen and is now trying to offer an alternative jurisdiction with a more sophisticated regime, at least in the wholesale space.

The position on Ethereum and public permissionless blockchains is telling: the BoE hasn’t ruled it out. The June policy statement says it remains open to issuers using public permissionless ledgers, provided they can satisfy concerns about settlement finality, accountability, and operational resilience. That’s not a no, but more of a “we haven’t worked out how to say yes yet.”

Whether any of this matters geopolitically depends on something the BoE cannot control: whether the dollar stablecoin infrastructure is already so deeply embedded globally by the time GBP stablecoins reach meaningful scale that the window has closed.

The BoE might be building the world’s most carefully designed irrelevance. Or they might be laying the groundwork for the pound’s first genuinely global digital presence in a century.

My assessment? I’d give the first scenario better odds.