The current US executive’s attack on the top officials of the Federal Reserve is a sharp affront to decades of hard-won wisdom in central banking—wisdom painstakingly gained through policy errors and inflationary crises, and also credited with delivering stable and prosperous economies. The wave of politisation now threatens the monetary credibility of the US and the dollar’s dominant reserve currency status. It is therefore tempting to question what might be the implications for the universe of crypto assets, a large part of which is built on that foundation.

Looking back: Central bank independence as an anti-inflation tool

The movement to make central banks independent took shape in the twentieth century, driven by hard lessons from spiraling inflation—most infamously in the 1970s—when government interference in monetary policy led to considerable macroeconomic costs. Influential central banking scholars and practitioners such as Alesina, Summers, and Cukierman showed nearly perfect negative correlations between central bank independence and inflation in advanced economies. These findings brought about what the ECB’s Lamfalussy would later call a “sea change” in monetary policymaking: Over 80% of the world’s central banks won operational independence and the fight against inflation became their explicit, legally protected aim by the turn of the millennium.

Such credibility was neither quickly gained nor easily maintained: Latin American countries, for example, suffered for nearly fifty years—from the collapse of the gold standard to the hyperinflationary 1980s—before finally embracing true operational autonomy for their central banks, achieving dramatic reductions in inflation and macroeconomic instability as a result. Price stability was achieved and sustained once central banks were insulated from short-term political agenda and prevented from monetizing fiscal deficits. Notably, Latin American history also suggests that granting central bank independence with an explicit price stability mandate produces superior long-term outcomes in taming inflation compared to simply pegging the domestic currency to the US dollar.

Why the US current executive’s actions are uniquely worrying

The ongoing public attacks by the US executive on Federal Reserve officials resurrect the specter of government encroachment on monetary policy and herald a dangerous regression to the “bad old days” where political motives dictated money supply decisions. These acts strike directly at the core of a proven institutional anti-inflation legacy.

History illustrates the grave consequences of weakened central bank autonomy. Outcomes like high inflation, capital flight, eroded market confidence, unsustainable government debt spirals, and rising inequality often follow. While such a severe scenario remains unlikely in the US due to its relatively strong institutions, subtler yet impactful repercussions may emerge within global traditional and crypto financial markets. This is especially true regarding pegged crypto assets—digital tokens designed to maintain stable value by linking to traditional assets, commonly fiat currencies or commodities like gold.

The US dollar: Anchor of the crypto asset universe

Confidence in the US dollar as the global reserve currency fundamentally hinges on trust in the long-term credibility and independence of US monetary policy. Threats to this trust intensify not only the likelihood of shifts in actual reserve holdings but also the broader transformation of global financial architecture, including the rising ecosystem of crypto assets. Growth in pegged crypto asset segments particularly depends on the dollar’s anchor status.

Research substantiates that stablecoins themselves do not generate credibility. Instead, they borrow reputation from their underlying fiat references, most often the US dollar. Consequently, their stability—and potentially that of the wider crypto ecosystem—erodes in parallel with growing doubts about the anchor currency’s institutional robustness.

Research at the Fundação Getúlio Vargas in São Paulo (“Stablecoins are not robust anchors”) draws a vital distinction between safe haven assets and anchor assets—terms frequently conflated in financial stability discussions. An anchor asset provides persistent, dependable stability across varying conditions, akin to a ship’s anchor steadily securing a vessel. Meanwhile, a safe haven asset offers temporary shelter during times of market volatility but lacks consistent grounding. The research confirms that while US dollar–pegged stablecoins outperform unpegged cryptocurrencies in turbulence, they fail to exceed traditional fiat currencies in stability, independence, or resilience. Stablecoins lack the consistent, long-term stability essential to true anchor assets.

A role not guaranteed to last indefinitely

The so-called digital currency arms race is a competition that extends beyond mere technological adoption. It is a pivotal struggle over which nation’s monetary instruments will serve as the digital-era anchors. The U.S. dollar’s dominance as the world’s primary reserve currency and its widespread use in stablecoins is not guaranteed to last indefinitely.

For example, China’s advancements in central bank digital currencies (CBDCs) and payment infrastructures signal a deliberate challenge to the dollar’s supremacy. The chart below underscores the dominance of USD-pegged stablecoins. But as US dollar credibility erodes, the share of non-dollar pegs—potentially including the digital yuan, euro, or commodities like gold—could increase.

A case for scrutinising crypto flows

Thus, looking ahead, the flows within crypto asset markets provide a unique real-time laboratory to explore what constitutes a true anchor asset in a hybrid global financial system bridging traditional and innovative crypto elements. The highly fluid crypto space—with competing pegged (and unpegged) assets striving for stability, trust and market share—will reveal how views on suitable anchors will evolve post this recent attack on US monetary institutions.

Monetary policy, traditional financial markets, and stablecoins intertwine in complex and multifaceted ways, and the credibility of monetary policy shapes the transmission channels profoundly. Robust statutory independence, transparency, and clarity of mandate for central banks are not mere historical footnotes; they are essential guardrails enabling monetary policy to withstand political business cycles and maintain public trust. Eroding that legacy threatens to destabilize the global financial system profoundly. The question looms large: will the US dollar continue to serve as the anchor asset it historically has been, or will it reduce to merely a safe haven asset? Current US executive actions cast significant doubt on this assumption of unquestioned global anchoring.

Note: Estimates in US dollar billions. CoinDesk Market Data (https://data.coindesk.com) and DefiLlama Stablecoins Dashboard (https://defillama.com/stablecoins), with historical snapshots compiled and visualized by the author with the help of AI tool Perplexity.

Stablecoins are not robust anchors. In volatile financial markets, safety and stability are desirable. Hence, investors seeking refuge from economic uncertainties often gravitate towards safe-haven assets. Safe haven assets maintain or increase their value during market turmoil by offering temporary protection. Several empirical studies focus on safe assets. Yet another concept is that of an anchor asset. Such an asset consistently provides (relative) stability, thus serving as a reliable reference point regardless of market conditions. Stablecoins are not such assets. .

Safe haven versus anchor assets

Images can be used to elucidate the nuances between the two concepts. An anchor asset can be analogised to the function of an anchor in a vessel. As a vessel’s anchor provides stability and prevents drifting in fluctuating tides and currents, an anchor asset aims to maintain a consistent value and serves as a reference point in volatile financial market conditions. Conversely, a safe haven asset can be likened to a harbor in which a vessel is sheltered during inclement weather. It does not necessarily prevent adverse conditions but offers protection to vessels seeking refuge from turbulent waters.

This analogy has implications for the behavior of an anchor asset in the three dimensions of stability, independence, and resilience. i) A vessel with an anchor is generally more stable than other vessels in both calm and turbulent waters. ii) The movement of such a vessel is not much influenced by the movement of the surrounding vessels. iii) Furthermore, its motion is less affected, compared with other vessels, by the turbulence caused by inclement weather.

As background, Claessens et al. (2017) used a similar image to compare the performance of different financial intermediaries, suggesting that bank capital acts as an anchor. It stabilizes credit provision amounts and conditions and thus mitigates the adverse effects of credit shocks on firms experiencing such shocks. Higher capital levels facilitate the continuation or lending in volumes and conditions as before an adverse event. Better capitalized banks provide higher stability in intermediation. Incidentally, this observation also testifies to the crucial role of minimum capital requirements in bank regulation.

A framework to define an anchor asset

A new conceptual framework draws on this metaphor to assess financial assets in terms of mutual information flows. It considers three dimensions: (i) stability, (ii) independence, and (iii) resilience, to check empirically whether an asset might be a robust anchor.

With regard to (i), both the anchor and safe-haven functions are fundamentally rooted in the asset’s capacity to maintain a stable value towards some numeraire. The US dollar serves as a prime example for the latter, given its preeminent status as the world’s most significant reserve asset. Thus, for an asset to function as an anchor, it must exhibit stability relative to the USD. This relative stability must hold at all times. By contrast, a safe haven shines during periods of market turbulence. In fact, during such periods, when other assets are under downward valuation pressure, a safe haven asset might even gain value.

With regard to (ii), both functions demand a certain degree of independence from other assets. Both functions imply that the asset retains its value and utility even when other financial instruments or currencies experience volatility. A safe haven asset may even increase its value as a result of the trouble facing other assets.

Regarding (iii), the resilience aspect is pertinent to both functions, albeit with slightly different emphasis. The anchor function requires consistent stability over extended periods, ensuring that the asset serves as a reliable reference point for other currencies and financial instruments. By contrast, the safe-haven function becomes especially critical during specific episodes of market stress. During such periods, investors seeking refuge amidst widespread uncertainty and volatility tend to push up the prices of safe-haven assets.

New empirical evidence suggests that stablecoins are not robust anchors

A review of the empirical literature on the interlinkages between conventional financial and crypto assets highlights that the safe-haven concept focuses primarily on performance during periods of market turbulence. For instance, stablecoins function as crypto-safe havens against Bitcoin and traditional equity market volatility, preserving the overall portfolio wealth through their own stability during market downturns.

By contrast, the concept of an anchor asset emphasizes consistent stability over time. Anchor assets serve as a constant reference point for an investment portfolio. A recent study (Stablecoins as Anchors? Unraveling information flow dynamics between pegged and unpegged crypto assets and fiat currencies) considers a variety of empirical tests — such as Granger causality, asymmetric dynamic conditional correlation-GARCH, and transfer entropy estimates — to assess spillovers between the USD prices of stablecoins, unpegged crypto assets, and fiat currencies. Importantly, it only considers major stablecoins that have survived and increased in market capitalization during stress episodes as opposed to those that have collapsed, such as e.g. the TerraUSD stablecoin.

The study shows (see also the graphical abstract below) that stablecoins pegged to the US dollar perform better than unpegged crypto assets in terms of stability. However, they do not perform better than fiat currencies do. Additionally, stablecoins do not perform better than the other two asset classes in terms of independence or resilience. Thus, stablecoins are not better anchors than unpegged crypto assets or fiat currencies (other than the US dollar). Another question is, however, what asset might be a robust anchor when the USD is not considered the numeraire.