Cryptocurrencies known as Stablecoins serve as essential, yet transitional, advancements
In the ever-evolving world of finance, stablecoins are making waves as the next big thing. On 26 September, OMFIF is hosting an event in Washington DC to chart the next phase of the SEC's Crypto Task Force, delving deeper into this intriguing topic.
The roots of stablecoins can be traced back to the 21st century, when digital forms of cash proliferated, and bitcoin entered the national consciousness. Fast forward to 2014, and Tether, a blockchain token pegged to the dollar, entered the market. Backed, at least in theory, by reserves, Tether allows traders to have a digital dollar that can move at blockchain speed without relying on banks.
As states adopt this technology, they could unlock enormous economic gains. By making stablecoins inclusive, programmable, and identity-aware, they could revolutionise the financial landscape. For instance, if China issues a widely adopted digital renminbi stablecoin, Belt and Road Initiative trade might settle in Beijing's coin rather than Washington's.
However, the story of stablecoins is not just a payments one. It's a geopolitical one, as they can extend a country's monetary reach globally. If states adopt them wisely, stablecoins could upgrade the global monetary system and the economy itself, propelling us into a new era of digital finance.
The total value of issued stablecoins has already doubled to $250bn today from $120bn 18 months ago, according to McKinsey. Forecasts predict that this value will reach more than $400bn by year-end and $2tn by 2028.
The rise of stablecoins is not a new phenomenon. In Renaissance Italy, merchants pioneered bills of exchange to avoid hauling gold around Europe. These private instruments powered long-distance trade and were backed not by a king's decree but by reputation. Similarly, in 18th century Britain, during the Industrial Revolution, the Royal Mint couldn't produce enough small coins to pay factory workers. Private manufacturers then stepped in, minting 'tradesman's tokens' that became the most popular form of retail payment for decades.
Even thousands of years ago in Babylon, merchants recorded grain debts on clay tablets using private records of trust, not coins minted by kings. This early form of record-keeping laid the groundwork for the modern-day stablecoins.
The United States is also getting in on the action. Through the GENIUS Act, it promotes the development and regulation of US dollar-backed stablecoins as a key part of its digital currency strategy. This move effectively supports the creation of a regulated stablecoin to strengthen the dollar's global role.
However, the rise of stablecoins also presents challenges. The real nightmare scenario for policy-makers may not be a foreign central bank, but transnational big tech. As the landscape of stablecoins continues to evolve, it's crucial for policymakers to navigate these complexities carefully.
For more information on this topic, interested individuals can subscribe to OMFIF's newsletter. Stay tuned for updates on the SEC's Crypto Task Force event and the future of stablecoins.
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