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Stablecoins Spearheading a Dollar-Based Revolution
In a recent opinion piece in The Wall Street Journal, the potential of stablecoins to spearhead a dollar-based revolution was highighted, indicating that these could be instrumental in sustaining the U.S. dollar's global dominance. This assertion was made by Brian Brooks, previous CEO of Binance.US and Charles Calomiris, a luminary in economics, politics and history.
With their combined experience in government regulatory bodies and the crypto industry, they appealed on Congress to construct a “robust and steadfast regulatory ecosystem” for stablecoins in America.
The Roadblocks to Regulating Stablecoins
A proposed legislation titled the Clarity for Payment Stablecoins Act was introduced by House Financial Services Comittee Chairman, Patrick McHenry, in July. Unfortunately, this proposal stumbled over several hurdles due to the absence of bipartisan consensus.
As per Brooks and Calomiris's analysis, amidst growing fears of dedollarization, where the dollar risks losing its status as the global reserve currency, stablecoins might revive echoes of the period post World War II, when the dollar rose to prominence as the international trade currency.
Data-Backed Affirmations and Cautionary Perspective
This claim is buttressed by data from the International Monetary Fund that illustrates a decline in the portion of U.S. dollar reserves held by offshore central banks, dropping from roughly 73% in 2000 to 59% today. The op-ed succinctly states: “Any instrument capable of enhancing the U.S. dollar ought to be taken into consideration.”
The duo also shed light on the growing trend of dollar divestment by sizeable commodity players like Brazil and Argentina. The aforementioned nations have established bilateral trade deals with China to utilize the yuan and their respective national currencies; the real and peso. They make the case that stablecoins offer individuals in hyperinflation-stricken economies a simplified access to the U.S. dollar.
The Call for Stablecoin Regulation
In terms of implications on the U.S. economy, the act of dedollarization is said to be harrowing. The current reserve status of the currency plays a crucial role in reducing the state's borrowing costs, especially during periods of governmental financial exorbitance. It is also critical in maintaining the purchasing power of the American consumer, mitigating the cost of overseas goods.
They propose that as stablecoins become more widespread, the demand for the dollar from foreign nationals could grow, regardless of (and potentially against) the fiscal policies of their national governments. They emphasize the need for American policymakers to concur on the necessity to redollarize the global economy.
