Silicon Valley Bank and Sphere Labs have jointly published a report, called Runaway Dollarization, on dollar-based payment stablecoins- effectively, regulated digital dollars. The thesis is that the growth of digital dollars will boost dollarization in a positive way while also reducing reliance on local currencies in markets with ineffective policies and high inflation.
Eventually, local monetary policy will become less efficient over time, and digital dollarization could turn a localized currency crisis into a faster, more severe capital-flight event.
While stablecoins will not cause foreign currency stress, digital dollars can accelerate the timeline and amplify the stress once it begins.
The paper breaks out the potential systemic (localized) risk to digital dollars:
First is structural erosion, which may take years as consumers hold funds in digital dollars and local banks may hollow out. This phenomenon has happened and continues to happen in high-inflation countries, but in an analog manner. People mitigate inflation risk by moving funds to other assets like dollars, but with payment stablecoins, the transfer can be instant and more widespread.
The second is “acute contagion,” where a banking shock could occur rapidly, the report predicts.
The authors of the report say both channels are already visible. Prohibition does not stop demand; it pushes activity into informal markets that are harder to tax and supervise. Existing regulatory frameworks have been built for a more analog era and are ill-prepared for digital dollars.
Global stablecoin usage, mostly dollars, grew by 50% in just 12 months, from $205 billion to $307 billion in 2025. New rules, like the GENIUS Act in the US, will boost digital dollar use. At the same time, new rules focus on issuance and management but not capital flight in smaller or high-inflation markets. One projection puts stablecoin usage at $2 trillion by 2028. Another has it at $4 trillion by 2030. Regardless, usage is growing and will accelerate.
The report advocates moving compliance from the application layer to the network layer, which provides greater visibility.
Of course, jurisdictions that want to control their own currency should adopt policies that mitigate inflation or currency printing that harms the economy.
While there is no near-term risk and a stress event is only a possibility, the paper is an interesting read. Payment stablecoins in the US should boost purchases of US treasuries, buttress the dollar as the world’s reserve currency, and undermine adversaries (IE China), which is a good thing.
