Kyrgyzstan is preparing to launch a stablecoin denominated in US dollars but backed by its substantial gold reserves.
Analysts argue that the move undermines Washington’s efforts to bolster the dollar’s dominance by using stablecoins to drive demand for US Treasuries. They also see it as a potential geopolitical test case for countries aiming to circumvent American sanctions.
USDKG Debuts With $50 Million Issuance
Kyrgyzstan’s financial regulator announced on Wednesday the launch of its national stablecoin, USDKG, with an initial issuance valued at over $50 million.
Unlike traditional stablecoins, USDKG is pegged to the US dollar but backed by physical gold reserves, making it the world’s first stablecoin of its kind. Kyrgyzstan’s decision to back its new stablecoin with gold stems from the country’s substantial reserves.
The Central Bank currently holds around 340 tons of gold, while exports reached roughly 16 tons in 2024. Geological surveys also suggest over 1,000 tons of confirmed reserves underground.
By backing its stablecoin with gold instead of US Treasuries, Kyrgyzstan gains a strategic advantage. It can use USDKG to maintain cross-border payments and support international trade outside US oversight.
Against this backdrop, the United States is likely viewing the development with significant concern.
Undermining US Plans for Stablecoins
Kyrgyzstan is a close ally of Russia and firmly within the Eastern sphere of influence. Several of Kyrgyzstan’s banks have faced SWIFT-related sanctions from the United States, which have restricted their access to traditional cross-border payment networks.
As a result, the country is following the path of nations like Russia and China, exploring stablecoins as an alternative means to facilitate cross-border transactions and sustain international trade.
Its solution, USDKG, is a very valuable alternative. One that will likely not go unnoticed by the United States.
US President Donald Trump signed the GENIUS Act this year with a clear objective in mind: to reduce the dollar’s exchange value while reinforcing its role as the world’s main payment system.
However, when gold rather than US dollars backs a stablecoin, it effectively undermines Washington’s intent. The stablecoin uses the dollar’s name for credibility and distribution, but doesn’t increase demand for dollar-based assets such as Treasury bills.
Equally important is the fact that gold cannot be sanctioned or frozen by the United States. Aside from the existing sanctions the US places on adversarial countries, its other options are limited.
A New Sanction-Proof Financial System?
One of Washington’s main concerns about USDKG is that other countries might follow Kyrgyzstan’s example.
Crypto analyst Ryan Adams noted that larger nations, such as India, China, and Brazil, could soon launch their own gold-backed stablecoins.
Unlike Tether, if sovereign governments issue stablecoins, the US would have reduced leverage. It could directly pressure those governments or direct the Office of Foreign Assets Control (OFAC) to sanction wallets holding USDKG or similar assets.
However, such measures would only block transactions on centralized exchanges, such as Coinbase. They would have little to no effect on stablecoins used in decentralized or DeFi networks, as well as through peer-to-peer transactions.
Given these circumstances, stablecoins not backed by US Treasuries provide America’s rivals with a practical and effective alternative, simultaneously undermining Washington’s goals for a stablecoin-based economy.
