Cryptocurrencies known as Stablecoins serve as important transitory advancements
In the rapidly evolving world of digital currency, stablecoins have emerged as a significant player, designed to maintain a stable value, often pegged to a national currency like the US dollar. According to McKinsey, the total value of issued stablecoins has doubled to $250bn today from $120bn just 18 months ago, and it is forecast that this figure will reach more than $400bn by year-end and $2tn by 2028.
One of the most well-known stablecoins is Tether (USDT), which was introduced in 2014 as the first widely used stablecoin pegged to the US dollar. Bitcoin, while being the first blockchain-based cryptocurrency, was not a stablecoin.
The growth of stablecoins is not solely a payments story; they also have geopolitical implications. As they can extend a nation's monetary reach globally, their potential for transnational big tech to issue stablecoins could pose a significant challenge for policymakers. For instance, if China issues a widely adopted digital renminbi stablecoin, international trade might settle in Beijing's coin rather than Washington's.
The European Union is rolling out its Markets in Crypto-Assets Regulation, and the US has passed the Genius Act. Meanwhile, OMFIF is hosting an event on 26 September in Washington DC to chart the next phase of the SEC's Crypto Task Force.
David Birch, Principal at 15Mb, suggests that governments adopting the technology as central bank digital currencies could unlock enormous economic gains. He further states that the state will eventually claim stablecoins, following a pattern where private innovators create stability, and the public flocks to it.
The history of stablecoins can be traced back to various historical examples, such as private merchants recording grain debts on clay tablets in Babylon. During the Industrial Revolution in Britain, private manufacturers minted 'tradesman's tokens' to pay factory workers when the Royal Mint could not produce enough small coins.
If governments harness the technology wisely, stablecoins could upgrade the global monetary system and the economy itself. Interested readers can subscribe to OMFIF's newsletter for more on this topic.
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