Asia’s financial defences were designed for a world in which US dollarstress was transmitted mainly through banks and exchange rates. Since the 1997–98 Asian financial crisis, central banks have accumulated larger foreign exchange reserves, exchange rates have become more flexible and regional financial safety nets have expanded. Stablecoins create a different kind of exposure.
The largest and most widely used stablecoins are linked to the US dollar, allowing private dollar claims to circulate through payment networks in ways that conventional measures of external vulnerability may not fully capture.
Stablecoins are promoted as a way to make cross-border payments faster, cheaper and more inclusive. In Asian economies with limited banking access, high remittance costs or scarce dollar liquidity, dollar-linked stablecoins can offer an alternative payment channel. These instruments can deepen dollar dependence by making it easier for households and firms to save and make payments outside conventional domestic banking channels. Their credibility still rests on reliable redemption into dollars and, ultimately, on access to dollar liquidity.
For Asia, the question is whether wider use of dollar-linked stablecoins shifts part of existing dollar dependence into private payment networks that domestic authorities influence less directly. On public blockchains, transaction records are accessible to anyone, which can aid tracing. But determining who controls a digital wallet and whether the activity is occurring domestically remains difficult. Stablecoins could make dollars more readily available while limiting authorities’ ability to identify where such demand is building.
Over time, more private dollar demand could shift into digital dollar networks. Firms may hold tokenised dollar claims issued by private entities and transferred across platforms. Households may use dollar tokens because they are easier to access than bank accounts, while platforms may prefer stablecoins for cross-border settlements. These choices could embed dollar infrastructure more deeply in domestic and regional payments.
Consistent with these cross-border uses, gross stablecoin inflows across 18 emerging markets from January 2020 to February 2025 were significantly associated with remittance and trade flows, though the closer link was to crypto-asset transactions. Volumes were also higher where institutional and political stability was weaker.
The US GENIUS Act, enacted in July 2025, establishes a federal framework for payment stablecoins, with implementation underway. Greater regulatory clarity could encourage wider international use of dollar stablecoins. But for Asian regulators, broader adoption would leave important regulatory decisions to authorities elsewhere. Some major issuers are based outside Asia, while the assets backing their tokens and the rules governing issuance and redemption may fall under foreign jurisdictions.
Stablecoin use presents a narrower application of Schoenmaker’s financial trilemma, which states that financial integration, financial stability and national financial policies cannot all be achieved simultaneously. This differs from the classic monetary trilemma of capital mobility, exchange rate stability and monetary autonomy. For stablecoins, the tension is between payment openness, financial stability and domestic regulatory autonomy over payment networks.
Broad access with limited domestic controls may improve payment efficiency while increasing stability risks. Prioritising stability and autonomy may require tighter limits on access, while reliance on foreign-regulated issuers and standards can reduce autonomy. Countries’ ability to manage this trade-off will vary across Asian jurisdictions. Authorities with stronger supervisory capacity have greater scope to monitor stablecoin issuers and their links with banks.
Financial centres should treat stablecoins as part of the wider financial system rather than solely as payment instruments. Singapore and Hong Kong have focused on issuer safeguards. In 2023, the Monetary Authority of Singapore finalised a stablecoin framework with requirements on reserve assets, redemption and disclosure. Hong Kong’s licensing regime took effect on 1 August 2025. Even in financial centres, supervision must cover links with banks and redemptions during periods of stress.
Access to backing assets matters. When Silicon Valley Bank failed in March 2023, Circle, the issuer of USD Coin (USDC), could not immediately withdraw US$3.3 billion held at the bank, about 8 per cent of USDC’s reserve assets. The episode was accompanied by a surge in redemption requests, and USDC briefly traded below its dollar peg.
Where supervisory capacity is limited, the balance should tilt towards stability and domestic regulatory control. Authorities can permit retail use of foreign-currency stablecoins to expand gradually as supervisory capacity develops. Limits on domestic distribution and clearer reporting requirements for wallet providers can help keep activity within supervisory reach. Where stablecoins are allowed for remittances or trade settlement, local intermediaries should report aggregate flows and redemption activity.
Regional cooperation can help without requiring a single Asian stablecoin regime. Shared standards for backing assets, redemption and the treatment of foreign issuers can reduce regulatory gaps while preserving cross-border payment access. Without coordination, activity may gravitate towards the easiest regulatory entry point. ASEAN payment connectivity and local currency settlement arrangements can improve resilience by keeping alternative payment routes available when dollar channels become costly, restricted or unreliable.
The dollar will remain central because it is widely accepted and supported by deep, liquid financial markets. For most Asian economies, abruptly reducing dollar exposure is unrealistic, but they can reduce unnecessary dependence on a single set of dollar access channels.
The more plausible outcome is a digital, privately operated layer within the dollar system, still anchored in dollar liquidity and US Treasury market depth. Asia’s financial architecture remains relevant, though stablecoins expose a gap in its design. Faster dollar payments can ease frictions for firms and households while greater reliance on dollar networks governed outside the region may deepen a form of dollar dependence that foreign exchange reserves and regional safety nets alone cannot easily address.
Ramkishen S Rajan is Yong Pung How Professor at the Lee Kuan Yew School of Public Policy, National University of Singapore.