As a seasoned analyst with years of experience in the financial sector, I find the recent developments surrounding stablecoins and their potential role in extending US dollar hegemony intriguing. Given my background, I have witnessed firsthand the evolution of digital currencies and their impact on traditional finance systems.
On October 18th, Governor Christopher Waller of the Federal Reserve Bank stated before an assembly at the Institute for Advanced Studies that properly regulated digital currencies known as stablecoins could enhance the existing financial infrastructure.
“Stablecoins can reduce the need for payment intermediaries and thereby reduce costs of payments globally,” Waller stated, but immediately qualified his remarks by saying that stablecoin “Safety is not assured.” The Fed official explained:
“If appropriate guardrails can be erected to minimize run risk and mitigate other risks, such as their potential use in illicit finance, then stablecoins may have benefits in payments and by serving as a safe asset on a variety of new trading platforms.”
Waller further pointed out that Decentralized Finance (DeFi) could harmoniously coexist with conventional finance rather than replacing it completely. This idea has been advocated by certain US legislators who believe that DeFi and dollar-backed stablecoins could prolong the dominance of the U.S. dollar for several more decades.
Stablecoins as a way to extend US dollar hegemony
On June 14th, an article was published in The Wall Street Journal, penned by ex-Speaker of the U.S. House of Representatives, Paul Ryan, outlining the potential of digital currencies known as stablecoins to address the impending debt crisis.
Ryan emphasized that stablecoins increase the need for U.S. Treasury bonds and U.S. dollars, thereby strengthening the dollar’s position versus the Chinese yuan and maintaining the U.S. dollar’s dominant role as the world’s reserve currency.
Lately, in October, US Senator Bill Hagerty presented the Clarity for Payment Stablecoins Act. This act is an extension of the stablecoin bill proposed by Representative Patrick McHenry in 2023.
“The significant alterations made to the bill primarily focused on two aspects: first, implementing regulations for stablecoins within individual states; second, omitting a provision from the 2023 version of the bill that labeled stablecoins as securities.
In contrast to ongoing efforts, a recent study by Chainalysis has shown that the U.S. is falling behind in the adoption of stablecoins. As per Chainalysis’ findings, the proportion of stablecoin transactions on American-regulated platforms dipped below 40% in the year 2024. On the other hand, the percentage of stablecoin transactions facilitated by offshore exchanges has surged to 60% this year.
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2024-10-18 22:41