Stablecoin Architecture, Digital Dollarization, and the New Triffin Dilemma

Silvia Sgherri

No 2026-015, Working Papers from The George Washington University, The Center for Economic Research

Abstract: A global digital liability is a contract with three clauses that can be written separately at issuance: denomination, which governs what the liability pays and how well it insures its holders; the unit of account, which governs pass-through into prices; and backing, the government bonds held against it, which governs the yield privilege and the issuer’s currency exposure. Dollar stablecoins set all three to the dollar; multilateral proposals would move them to a basket. In a three-country New Keynesian model with currency-disaster risk in the periphery, a convenience yield on reserve assets, and original sin, we show that, however it is written, the contract cannot remove peripheral currency risk, only decide who bears it. Insuring against the peripherys currency creates an open position for the issuer. With fixed capital, that exposure places a limit on the scale at which the liability can be supplied credibly: a new Triffin dilemma that can be overcome by capital that grows with the open position. The mechanism behind the old dilemma reappears in general equilibrium: the country whose bonds back the liability runs a permanent trade deficit financed by the world’s demand for them, and the yield privilege it draws exceeds the interest it saves, as its terms of trade improve.

Keywords: stablecoins; digital dollarization; unit of account; convenience yield; original sin; portfolio balance; international monetary system; Triffin dilemma (search for similar items in EconPapers)
JEL-codes: E42 E44 F31 F33 F41 G23 (search for similar items in EconPapers)
Pages: 105 pages
Date: 2026-10
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