A new era of digital currencies - operating outside the control of central banks - has well and truly begun. If technology can better support the resolution of contradictions and limitations within the current global monetary system and institutional framework, then efforts must be forthcoming to ensure that its power does not go to waste. The emergence of US-backed technological currencies like stablecoins comes with many compelling reasons to push further ahead, making it necessary to seriously assess both the potential benefits and risks as well as the opportunities that stablecoins may bring to developing economies like Vietnam.

In the aftermath of the 2008 Global Financial Crisis (GFC 2008), most households and investors worldwide, regardless of scale, incurred asset losses due to inflation and the bursting of the real estate and other financial asset bubbles. This erosion of wealth also led to a decline in trust towards the US-led global monetary regime, where the USD serves as the dominant international transaction currency and the primary official reserve of central banks around the world.

Shift away from traditional finance

However, the US dollar is no longer backed by gold and continues to be issued in ever-increasing volumes. The US does not fear inflation of the dollar because global demand for the greenback as a reserve and transaction currency remains strong. This demand can offset the US’s excessive money printing; a phenomenon that economists refer to as the “Triffin dilemma”. Smaller economies that rely on the USD must absorb the inflation exported through the US dollar. Their local currencies are often in a state of depreciation against the dollar, leading to the erosion of national assets and wealth.

In addition, the USD-based payment system, SWIFT (Society for Worldwide Interbank Financial Telecommunications), which is a centralized network led by the US, has become a powerful tool of political, diplomatic, and monetary influence. Economies that face sanctions or international isolation can be removed from the SWIFT system, making it one of the harshest forms of economic punishment.

In this context, the first non-sovereign digital currency was born, based on blockchain technology, with Bitcoin as the pioneer. After Bitcoin’s emergence, hundreds of thousands of other cryptocurrencies appeared. A new digital currency industry, independent from the traditional financial system, quickly grew and gained momentum.

As global polarization deepens, many organizations are seeking to process payments beyond government oversight. At the same time, some governments require discreet channels for sensitive payments related to military arms or political funding. In such situations, non-sovereign digital currencies, led by Bitcoin, have become a viable alternative.

Bitcoin and other non-sovereign cryptocurrencies introduced not only a new model but also a mature technology platform: blockchain. This technology can verify ownership and enable ownership transfer through token-based transactions, functioning outside both the traditional banking system and the SWIFT network. It allows transactions to bypass the legal framework that the US has imposed on the global monetary system for the past five decades, often with significantly lower costs.

Subsequent digital currencies have significantly improved upon Bitcoin’s foundation, offering enhanced technological capabilities and broader applications. Some of these currencies have positioned themselves not merely as speculative assets but as functional tools of transaction and communication within expanding digital ecosystems.

However, non-sovereign digital currencies also carry major drawbacks. First, they lack asset backing or legal assurances, resulting in high volatility relative to the USD. Second, transactions are irreversible, which increases risk for users. Third, due to their untraceable nature, these currencies are ideal for money laundering and illicit transactions such as smuggling, arms trading, and criminal services.

Decoupling from the USD

In an effort to build economic and monetary alliances capable of challenging the US, China has recognized the borderless potential of digital currencies and has implemented efforts effectively within the BRICS bloc. BRICS member economies have been stocking physical gold in their reserves. Transactions for oil and commodities within the bloc are denominated in gold, and settlements are carried out using blockchain technology to transfer ownership. The gold itself remains in the vault, but, for instance, a specific gold tranche held by China can be reassigned to Russia through blockchain-based ownership transfer. When Russia needs the gold, it can physically retrieve it or resell it to a third party in exchange for foreign currency.

China also operates its own centralized payment system similar to SWIFT, known as CIPS (Cross-Border Interbank Payment System), for CNY-based transactions. However, the Chinese yuan is widely perceived as being subject to manipulation, lacking stability, and not backed by a reliable monetary regime. As a result, instead of trading oil for yuan, China has opted to trade oil for gold - settling transactions “outside the US system” using a form of money recognized universally: a gold-backed asset, combined with technology that bypasses US oversight and sanctions. Through this approach, China has been able to build a network of strategic partners and close allies such as Russia, Iran, and India.

Additionally, the US is weakening the dollar by widening the yield spread between US Treasury bonds and those of other developed nations. Over past decades, the US has consistently expanded its debt levels, with the total public debt now exceeding $36 trillion. Over the past three years, central banks globally have been net buyers of more than 1,000 tons of gold annually, a significant increase from the previous average of 400 to 500 tons. In May 2025, a survey by the World Gold Council involving 73 central banks revealed that 95 per cent expect global gold reserves to increase over the next 12 months, and 43 per cent believe their own reserves will also rise.

At the same time, concerns over US public debt have led to a decline in the value of US government bonds. The yield on ten-year US Treasuries currently stands at 4.4-4.5 per cent, a level not seen since 2007, just before the GFC 2008. This has prompted central banks to turn to gold as a way to restructure foreign reserves, hedge against depreciation in US government bonds, and better preserve the value of their domestic currencies. According to the US Treasury Department, central banks around the world hold approximately $9 trillion worth of US public debt, accounting for about 25 per cent of the total.

Stablecoins: A new tool

The US now faces two major challenges. First, demand for US public debt from central banks (for reserve purposes) may decline, even as the US must continue issuing new debt to restructure and roll over its existing obligations. Second, monetary alliances outside of SWIFT (such as CIPS or BRICS) and blockchain technology (through tokenization) are enabling decentralized, fast, low-cost, and secure ownership transfer of goods, beyond US oversight and control.

In this context, stablecoins - digital, non-sovereign currencies issued by private entities and backed by holdings of US government bonds - could provide a solution to both challenges.

On June 17, the US Senate passed legislation to establish a regulatory framework for token-based currencies pegged to the value of the US dollar, known as stablecoins.

Under the legislation, the STABLE Act of 2025 establishes a legal and regulatory framework for cryptocurrencies backed by the US dollar, under the principle that 1 stablecoin equals 1 USD. An organization, even if it is not the Federal Reserve, not a commercial bank, and not the US Government, is allowed to issue stablecoins as long as it purchases and holds a significant volume of US government bonds. Each issued stablecoin represents one US dollar that the government owes to that organization.

Other non-sovereign digital assets do not have asset backing, with the exception of USDT (a type of stablecoin), which is pegged to a fixed asset such as the US dollar. USDT is issued with a promise that 1 USDT equals 1 USD, based on the issuer holding USD cash, government debt, or other collateral. However, USDT remains non-sovereign and operates outside of formal legal frameworks, whereas stablecoins have a clearer legal and institutional foundation and are governed by regulatory oversight.

As a result, the emergence of stablecoins could generate new demand for US public debt from major technology firms and large private corporations. These entities, in turn, may replace the demand that is currently declining among central banks, which have shown increasing preference for gold over US government bonds. Such organizations may choose to hold US debt in order to issue their own stablecoins and profit from financial services related to stablecoin-based transactions, all while still earning interest from the US Government on their bond holdings.

Moreover, stablecoins create a decentralized system for currency and commodity transactions outside of SWIFT, but one that is still led and dominated by the USD. This presents a way for the US to maintain its position, leverage, and competitiveness within the global monetary and trade systems, and to continue shaping the global monetary order.

Balancing innovation with risk

However, like all traditional economic and financial tools, alongside the positives, certain risks inevitably exist. Recognizing these risks is extremely important for developing economies like Vietnam, because, in the end, we cannot stand outside this global game.

The first risk is the erosion of the “singleness of money”. The existence of legally-recognized stablecoins undermines the concept that money should have a single, unified value. Though stablecoins are often pegged to the US dollar, they are not actually dollars, and thus do not guarantee fixed value like official currencies. They can fluctuate and fail to maintain the 1:1 ratio with the dollar, leading to distrust in monetary stability.

The second risk is high volatility. Data shows that the non-regulated USDT exhibits greater-than-expected fluctuations, reducing its viability as a real currency. Will this also happen with regulated stablecoins? Whether this volatility causes financial risks, especially when investors or systems rely on them as payment instruments, remains unpredictable.

The third risk involves the potential misuse of decentralized transactions for illegal activities. Stablecoins can be exploited for money laundering and illegal fund transfers due to user anonymity and their ability to operate outside official systems. Like other digital currencies, they are a “top choice” for illicit transactions, posing a major threat to financial security. However, a tightly-designed regulatory framework could help mitigate this risk.

The fourth risk is the potential to destabilize markets and financial systems. If many people suddenly withdraw from stablecoins, it could trigger significant disruptions in financial markets, particularly the short-term US Treasury (T-bills) market. According to the Financial Times, stablecoin issuers like USDT became the third-largest buyers of T-bills in 2024, which raises systemic risks if they face financial distress or bankruptcy.

The fifth risk concerns the threat to monetary sovereignty of emerging and developing economies like Vietnam. Stablecoins may weaken national monetary control, especially in countries with unstable inflation. They can undermine foreign exchange regulations and complicate domestic economic management. Citizens and businesses may choose to use stablecoins for transactions, savings, or remittances instead of the national currency. This reduces the government’s ability to manage money supply, as capital flows move beyond central bank oversight. Consequently, it becomes more difficult to implement monetary policies, control inflation, or maintain exchange rate stability, increasing the risk of economic instability and weakening national financial sovereignty.

The sixth risk involves non-bank private institutions operating like banks, also known as the shadow banking risk. In the past, free banking systems failed due to uncontrollable private money issuers, leading to financial crises. If private stablecoin issuers are not tightly regulated, they could collapse, causing financial instability. Furthermore, the ability for large technology or private corporations to issue currency while offering banking-like financial services, without adhering to banking oversight standards, could introduce systemic vulnerabilities.

The seventh risk concerns the capacity to handle large transactions. Without central bank backing, stablecoins cannot ensure the processing of high-volume transactions, raising concerns about the system’s resilience during mass withdrawals.

Given that Vietnam is an export-dependent country with a highly open economy (approximately 200 per cent of GDP), it faces specific risks and challenges: criminal activities, money laundering, and illicit cross-border transfers via stablecoins; and the abovementioned threats to national monetary sovereignty.

However, on the flip side, if Vietnamese enterprises do not engage in stablecoin-based transactions, they could miss out on trade opportunities and the benefits of lower-cost, more efficient payments with international partners.

Therefore, Vietnam should research and develop a legal and institutional framework that enables all types of businesses to use stablecoins safely and soundly. This framework should be connected to tax data, anti-money laundering efforts, and oversight of money supply both within and outside the banking system, allowing the monitoring of capital and transaction flows involving stablecoins across borders. In addition, to safeguard monetary sovereignty, enhancing foreign exchange reserves, particularly increasing the gold reserve ratio, should be a long-term strategic priority.

(*) Ms. Nguyen Thi Ngoc Ha is from the National Institute for Economics and Finance, Ministry of Finance