Revisiting Dollar Hegemony and Stablecoins: Dollar hegemony is not defeated, but circumvented.

Author: Wang Yang, a renowned mathematics professor, Vice President of the Hong Kong University of Science and Technology (2020-2025), Chief Scientific Advisor of the Hong Kong Web3 Association.

The dominance of the dollar is not defeated, but circumvented. It is not replaced by another hegemony, but by de-hegemonization. It does not collapse at some dramatic moment, but quietly disintegrates in millions of P2P transactions.

Last time we discussed how stablecoins can be a double-edged sword for the dollar hegemony. Today, let's delve into the core channel of the dollar hegemony's operational mechanism, CHIPS, and why stablecoins can bypass this channel, weakening dollar hegemony.

01 The Channel of Dollar Hegemony

Let's start with a simple example. Suppose a Thai company wants to pay an Argentine company 1 billion Argentine pesos (about over 800,000 US dollars) for goods. Theoretically, this transaction has nothing to do with the United States—Thai company, Argentine company, the currencies of both countries, where does the US fit in?

But the reality is cruel.

First is the exchange rate trap. There is almost no direct exchange rate market for the Thai Baht to the Argentine Peso. Even if it exists, the bid-ask spread can be as high as 15%. As a result, this Thai company was forced to choose the "cheaper" path: first exchanging Thai Baht for US dollars, and then exchanging US dollars for Pesos. To save money and for convenience, they entered the "path" of SWIFT and CHIPS.

SWIFT is a global interbank financial communication network that provides secure and standardized information transmission services for cross-border payments. It identifies financial institutions through exclusive codes, ensuring precise routing of cross-border remittances, letters of credit, and other transactions; covering over 200 countries/regions and connecting more than 11,000 financial institutions.

But SWIFT is just a communication system - "the WhatsApp for banks." The Bank of Thailand sends a SWIFT message to the Argentine bank: "Please pay 1 billion pesos to a certain account." But the message is not money. Where is the real flow of funds?

This introduces another core pillar of the dollar hegemony: CHIPS (Clearing House Interbank Payments System). CHIPS handles over 95% of the global interbank dollar payment clearing and foreign exchange transaction settlement. Almost all international dollar transactions — whether from Thailand to Argentina, or from Germany to Japan — ultimately must be cleared through CHIPS.

Why? Here, it is essential to understand a key concept: the so-called "offshore dollars" are merely promissory notes. A dollar account at a German bank is actually an account at a member bank of CHIPS in the United States, held by the bank's New York branch. When a German company transfers dollars to a Japanese company, the actual settlement must take place in New York.

It's like a global casino: banks around the world are issuing and trading dollar chips, but these chips ultimately must return to New York, the only redemption window, to be cashed out. No matter where you win chips—in Las Vegas, Monaco, or Macau—you ultimately have to go to the same cashier. And CHIPS is the only cashier for this global dollar casino.

02 CHIPS: The Silent Assassin

If SWIFT is the mouthpiece of the dollar hegemony, then CHIPS is its heart. But strangely, hardly anyone talks about CHIPS.

Why is CHIPS more lethal than SWIFT? A SWIFT ban means "you cannot use our communication network," and you can switch to phone, email, or other banks. But a CHIPS ban means "your dollars are frozen," with no way to respond. This is the difference between cutting the phone lines and freezing bank accounts.

The efficiency of CHIPS is staggering, processing $1.8 trillion in transactions daily. Through sophisticated multilateral netting, CHIPS has a liquidity efficiency averaging 25:1, meaning that every $1 of capital can support $25 of settlement payment value (according to CHIPS official data). 41 direct members of CHIPS control 95% of the global international dollar liquidity. With a single directive from the U.S. Treasury, any entity could potentially be excluded.

What's more frightening is the silent weaponization of CHIPS. In 2018, executives of Turkey's state-owned bank Halkbank were arrested in the U.S. CHIPS did not formally sanction the bank, but its dollar payments began to "experience technical difficulties." Clearing times extended from 1 day to 2-3 weeks, forcing many Turkish businesses to abandon dollar transactions. No headlines, no formal statements, just a slow financial suffocation.

"Kicking our financial institutions (such as Bank of China) out of CHIPS is equivalent to releasing a 'financial nuclear bomb' against China, which could cause significant systemic financial risks to our country, while the losses for the United States would be relatively small. Such an operation is simple and flexible for the United States and could easily become the preferred policy tool for the U.S. during escalating conflicts." (Huang Qifan, "Strategy and Path")

03 Stablecoins: The Open Road to Bypassing Hegemony

In the traditional currency system, although everyone has seen through the game of the United States, there are very few who can challenge it. China is striving to bypass the dollar hegemony and has launched CIPS - a three-in-one alternative to SWIFT + CHIPS + Fedwire. CIPS integrates communication, clearing, and settlement functions, operates 23 hours a day, natively supports cross-currency transactions, and has reserved interfaces for the digital yuan, which is indeed technologically advanced.

However, CIPS still has difficulty in solving two major dilemmas:

First, there is the liquidity dilemma: the daily trading volume of the USD/EUR market is 6 trillion dollars, with a spread of 0.01%; while the daily trading volume of the CNY/EUR market does not exceed 50 billion dollars, with a spread of 0.5%; as for the CNY/RUB market, the spread can exceed 1% and even over 2%. Without depth, the market lacks efficiency, and without efficiency, it lacks attractiveness.

Secondly, there is the dilemma of exchange rate pricing: some transactions have strong administrative forces behind their exchange rate pricing, which deviates from the market exchange rate, and a mature exchange rate pricing mechanism has not yet been established.

However, while China and the United States are vying for control over financial channels, the crypto world is building aircraft beyond traditional pathways.

Stablecoins completely bypass CHIPS. The traditional path requires multiple intermediaries, while stablecoins only need wallet-to-wallet transactions. Transactions cannot be monitored through CHIPS, funds cannot be frozen, and sanctions cannot be enforced. The pillar of dollar hegemony has no support in the stablecoin system.

Stablecoins achieve true 7*24 settlement, while CHIPS only operates for 18.5 hours on weekdays. More importantly, stablecoins create decentralized liquidity. In Lagos, you won't find a trading market for Naira/THB, but you can find a P2P market for USDT/Naira. Market depth is no longer created by central banks but is instead formed spontaneously by demand.

But critics always point out the key bottleneck of stablecoins: you ultimately still need to exchange back to fiat currency. No matter how freely USDT circulates on the chain, when it comes to the real world, you still have to go through the banking system to buy bread. However, this situation is about to be completely changed.

04 In the name of fiat currency, say goodbye to fiat currency.

The United States itself may pull the trigger to end the dollar hegemony.

The GENIUS Act and related legislation in the United States are paving the way for the mainstream adoption of stablecoins. Once regulations are clear, American corporate giants are ready to take action: Amazon is preparing to launch Amazon USD, Walmart plans to issue Walmart Dollar, and Apple may introduce iUSD. This is not a small-scale experiment, but a tsunami that is about to change the game.

Imagine a day in 2027: in the morning, buying Starbucks with iUSD, shopping with Amazon USD at noon, receiving a salary in corporate stablecoins in the afternoon, paying for subscriptions with stablecoins in the evening, and paying rent with USDC at the end of the month. No need to touch traditional banks throughout the process. This is no longer a "last mile" issue, but rather that the entire journey does not require fiat currency.

When Walmart accepts stablecoin payments and offers discounts, competitors will be forced to follow suit. Workers in Mexico can receive their wages in Walmart Dollars, instantly sending them to their families, who can either spend directly or exchange for pesos. The entire process involves no banks and no CHIPS clearing.

More destructively, inter-company payments occur. When Tesla can pay suppliers with stablecoins, and suppliers can purchase raw materials with stablecoins, a financial universe parallel to the traditional banking system is born.

This is not science fiction. In today's Argentina, many freelancers are completely living in a stablecoin economy. Banks seem to be something from another world.

The Paradox of Dollar Hegemony

The United States is now facing an intractable dilemma. If it stifles stablecoins, innovation will flow out, and other countries, even decentralized stablecoins, will seize the opportunity. If it embraces stablecoins, CHIPS will gradually become marginalized, financial monitoring capabilities will decline, and the weapon of sanctions will become ineffective. If it tries to control stablecoins, decentralized projects will move underground, other countries will launch competing products, which will instead accelerate de-dollarization.

This is like the predicament of the British Empire at the end of the 19th century: the choice of openness brought prosperity to London, but also sowed the seeds for the end of the pound's hegemony.

The next five years will be a watershed moment in financial history. If the daily trading volume of stablecoins exceeds one trillion dollars, if the Fortune 500 universally accepts stablecoin payments, and if multiple countries incorporate stablecoins into their reserves, then the traditional financial system will face an irreversible decline.

The financial network has strong path dependence. Once the stablecoin ecosystem reaches a critical scale, the more users there are, the better the liquidity; the better the liquidity, the lower the cost; the lower the cost, the greater the attractiveness; and the greater the attractiveness, the more users there will be. This is a positive feedback loop, while CHIPS will fall into the opposite death spiral.

06 The Emergence of the Decentralized System

We are witnessing not just a change in payment methods, but a fundamental restructuring of the financial power structure. From geographical space to cyberspace, from permissioned to permissionless, from opaque to transparent, from unipolar hegemony to decentralized networks.

The CHIPS building still stands tall in New York, processing trillions of dollars every day. But in corners around the globe, a parallel financial universe is rapidly expanding.

The paradox of history is that the moment when the US dollar's hegemony is strongest may also be its most vulnerable moment. When all transactions must go through your node, the motivation for everyone becomes to bypass that node. When the weaponization of finance reaches its peak, technology for de-weaponization will emerge.

The Bretton Woods system took 27 years to establish and collapse. How long can the dollar hegemony system based on CHIPS last?

Future financial history textbooks may record this: the hegemony of the dollar was not defeated, but circumvented. It was not replaced by another hegemony, but by de-hegemonization. It did not collapse in a dramatic moment, but quietly disintegrated in millions of P2P transactions.

Of course, the United States has not given up on weaponizing stablecoins. The U.S. stablecoin GENIUS Act requires stablecoin issuers to establish policies and procedures to prevent, freeze, and reject illegal transactions, as well as to implement effective customer identification programs, including identifying and verifying account holders, high-value transactions, and appropriate enhanced due diligence. Recently, Tether froze a total of 900 million dollars worth of Tether stablecoins in wallets linked to Iran under pressure, which signals the U.S.'s intention to weaponize the dollar stablecoin.

However, stablecoins are gradually rising globally, and the issuers of stablecoins will become increasingly diverse, while decentralized stablecoin issuance platforms are also growing. The United States' control over stablecoins will be far less than its control over the traditional currency system through SWIFT and CHIPS.