WSJ Opinion Why the US government should support stablecoins? Can strengthen the international status of the US dollarWSJ Opinion US Gov Should Support Stablecoins to Strengthen USD's International Status
Authors: Brian P. Brooks and Charles W. Calomiris; Translation: Wu Shuo Blockchain
Brian P. Brooks served as Acting Comptroller of the Currency of the United States from 2020-21 and as Chief Legal Officer of Coinbase from 2018-20. Calomiris is the Director of the Economics, Politics, and History Department at the University of Austin. He served as Chief Economist of the Office of the Comptroller of the Currency from 2020-21.
Stablecoins are blockchain-based assets backed by bank deposits and government bonds, and they are at the core of a dollar-based revolution that developing countries are experiencing. They are designed to maintain a stable price, typically pegged to 1 US dollar. They can be seen as digital versions of prepaid cards and have the potential to become an important tool of US soft power in a world where the role of the US dollar is questioned.
Stablecoins are not only a more efficient means of electronic payment. Some economists and policymakers are concerned about “de-dollarization” – the replacement of the US dollar as the world’s reserve currency. Stablecoins could support post-war arrangements where the dominance of the US dollar helped promote global trade and reduce global poverty. However, this can only happen with the implementation of robust and stable regulatory frameworks by Congress.
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This is why the Stablecoin Regulation Act proposed by Patrick McHenry, Chairman of the House Financial Services Committee, is crucial. It would establish federal and state oversight for stablecoin issuers, set qualification requirements for reserve assets, and implement rules regarding redemption and public disclosure. It is hard to argue against these seemingly bipartisan goals, as McHenry (a Republican from North Carolina) has been working with Maxine Waters (a Democrat from California) on this bill for over a year. However, in a vote on the measure last week, Ms. Waters and most of her Democratic colleagues withdrew their support, without a clear reason for this sudden change. Do they suddenly think stablecoins are not important anymore?
Any tool that could enhance the status of the US dollar should be considered. Over the past few generations, the share of the US dollar in foreign exchange reserves held by foreign central banks has declined. In 2000, the US dollar accounted for nearly 73% of global central bank foreign exchange reserves; today, that share is about 59%. While many international trade and significant commodity transactions are still settled in US dollars, this year major countries including Brazil and Argentina have signed bilateral agreements with China to settle trade in yuan and their local currencies.
There are rumors that a summit next month including Brazil, Russia, India, China, and South Africa will consider creating a new currency arrangement. While leaders of the so-called BRICS countries deny an imminent currency alliance, Anil Sooklal, South Africa’s Special Envoy to Asia and the BRICS, has said that the era of a “dollar-centric world” has “ended” and that the BRICS countries plan to settle trade in their local currencies in the near future. This year, Saudi Finance Minister Mohammed al-Jadaan said that Riyadh is open to settling oil transactions in currencies other than the US dollar – something that was once unthinkable.
The United States’ policies have not strengthened global confidence in the US dollar. The freezing of the Russian Central Bank’s dollar assets following Russia’s invasion of Ukraine, while understandable from a political perspective, shocked investors and central bankers, who realized for the first time that the US dollar may no longer be as secure as before.
A world without dollarization is harmful to the United States. The reserve currency status of the US dollar lowers the US borrowing costs, which is crucial in an era when government borrowing and spending are reaching record highs and still rising. The reserve status also protects the US government, banks, and the public from foreign exchange risks. Under equal conditions, the reserve status allows US consumers to purchase foreign goods at a cheaper price, as foreign producers prefer to hold dollars rather than other currencies.
The nationalist and anti-colonialist impulses behind the de-dollarization efforts of developing countries are unlikely to benefit their citizens. Argentina’s decision to price its trade transactions with China in yuan and pesos may reflect Argentina’s national pride, but with an annual inflation rate of 114%, workers there will still see their purchasing power rapidly decline. This pales in comparison to Zimbabwe’s 175% inflation rate or Venezuela’s 400%. As of the end of last year, inflation rates in 17 countries exceeded 20%, and in 57 countries, inflation rates exceeded 10%.
This is where stablecoins come into play. Faced with the bleak prospect of storing wages in local currency in local bank accounts, citizens of more high-inflation countries are opting to use dollar-backed stablecoins as comprehensive savings accounts. Dozens of startups offer stablecoin savings and payment options in Latin America and Africa—often in countries where leaders have openly and visibly abandoned the US dollar.
Stablecoins backed by the US dollar have a market value of billions of dollars and support transaction volumes far exceeding that amount. In these countries, these products are attractive to ordinary people because they do not require opening a bank account locally, only an internet connection. Additionally, many stablecoins offer interest payments and have no minimum balance fees, low or no transaction fees. Most importantly, they free people from the constraints of monetary policies in developing countries, allowing them to store the value of their hard work in a relatively stable form of the US dollar.
When the United States fails to establish contact with other governments, stablecoins can directly convey US monetary policy to residents of other countries. If stablecoins thrive, citizens of other countries will increase their demand for the US dollar, independent of their government’s political decisions (and possibly even contrary to them). But for stablecoins to succeed, US politicians need to recognize the importance of global re-dollarization in the economy.
The McHenry bill is a good start.
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