Stablecoins will strengthen the US Dollar as a reserve currency!
Here is our pick of the 3 most important Stablecoin news stories during the week.
With the Fed not doing anything soon, whilst China builds and tests it’s CBDC, many commentators have predicted the fast approaching decline of the US Dollar. But wait, most of the stablecoins in circulation today are US Dollar pegged!
This excellent speech by the always worth following Caitlin Long, explains how USD stablecoins offer a great opportunity for better regulatory transparency, superior performance for the economy and thereby will strengthen the USD hegemony.
As if to emphasize this point, JPM released a report this week that shows just how big Tether (the largest issuer of USD stablecoins) has become.
As Tether continues to grow at a rapid rate, naturally it will become more significant and potentially a systemic risk, but what about CBDC’s? Well as discussed in this report they are not without risk as well.
“The rapid development of central bank digital currencies could help to boost financial inclusion and stability, but they pose a threat to banks and could weaken their ability to lend, according to a report by Fitch Ratings.
CBDCs would help to speed up cashless payments and could “bring underbanked communities into the financial system” in many emerging markets.
In the Bahamas, for instance, where the “Sand Dollar” CBDC was introduced in October, low-value CBDC transactions can be carried out using just a phone number or an email address for identification.
“The deployment of CBDCs will create opportunities to strengthen financial system inclusion, innovation, resilience and efficiency, but may also give rise to new risks,” said Monsur Hussain, an analyst at Fitch Ratings and co-author of the report.
For instance, CBDCs “will inevitably involve households and businesses converting some of their commercial bank deposits into CBDCs”, the report said.
“All other things being equal, this would require banks to shrink their balance sheets”, affecting their capacity to lend, it said.””
In summary, the rise and rise of private sector issued US Dollar pegged coins may be the best thing that has happened to the US Dollar and the introduction of a US CBDC is not without systemic risk of it’s own. So it makes sense that the Fed can take it’s sweet time!
Alan Scott is an expert in the FX market and has been working in the domain of stablecoins for many years.
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