People walk past the Bitcoin office in Istanbul, Turkey, on February 28, 2024. (Photo: Umit… (+) Turhan Coskun/NurPhoto via Getty Images)
NurPhoto (from Getty Images)
The news that around 4% of Turkey’s GDP is already spent on stablecoin purchases is certainly surprising, but not shocking, at least to those who have read my book, The Currency Cold War. The Turkish lira (TRY) is actually the fourth most used fiat currency in the crypto world, with stablecoins and “memecoins” even surpassing Bitcoin in the country. Currently, USDT-TRY (i.e. Tether Tether) is the largest pair by trading volume on Binance, with over $22 billion in value, followed by the next largest pair (surprisingly) PEPE-USDT. That’s more than five times the $4 billion. . What does this mean for the country?
dollar dollar bill
In that book I talked about the difference between “prime” currencies (e.g. the US dollar) and “penetrated” currencies. Pervasive currencies exist and are commonly in circulation, but they are substituted by other currencies for important transactions. I can explain the latter category from personal experience. Many years ago, I lived in a developing country where all important transactions (like rent) were done in US dollars, and the local currency was used for everyday transactions. shopping, transportation, etc. People who have saved up a certain amount of local currency will quickly convert it to US dollars. Although the economy was not dollarized, it was penetrated by the US dollar.
Well, that goes back to the days when there were restrictions on acquiring, storing, and transferring US dollars. Only the wealthy had dollar bank accounts and could send money into and out of the country. Obtaining and transporting physical U.S. currency was a problem for people forced to transact in cash. For some reason (I forget the exact reason) I couldn’t accept dollars, so I remember very well pushing a small wheelbarrow full of local currency to a travel agent to buy a plane ticket.
Printers can’t accept Jim anymore.
©Helen Holmes (2021).
Well, it was then. Capturing, storing, and transferring electronic U.S. dollars is no longer the purview of wealthy individuals with foreign bank accounts or dollar credit cards. In Turkey and many other countries, more and more people are moving their money into stablecoins, and these stablecoins are almost exclusively USD stablecoins. It is misleading to say that this trend is about the adoption of cryptocurrencies. This is because I have always believed that the demand for virtual currencies in developing countries is primarily a proxy demand for the dollar.
The Financial Stability Board (FSB), an international body that monitors and makes recommendations for the world’s financial system, recently published a report on cryptoassets and global stablecoins, highlighting the macro-financial risks arising from their use in developing countries. warned that there is a possibility of exposure. The number of coins backed by foreign fiat currencies (digital currency boards, shall we say). These could increase financial stability risks by “destabilizing capital flows and putting pressure on fiscal resources.” In particular, they point out that a stablecoin may become systemically pervasive (i.e., penetrate) in an emerging economy before it reaches a threshold of becoming systemically important in the jurisdiction in which it is domiciled. are.
These risks are significant. Continuing with the interesting case of Turkey, we speculate on the impact of Turks increasingly choosing to use stablecoins pegged to the US dollar rather than their local currency, which will have a major impact on the country’s economy . the fact that the Turkish Central Bank’s ability to control the country’s money supply and its ability to implement effective monetary policy will be reduced; From an economic perspective, a decline in demand for the Turkish lira could lead to further devaluation of the Turkish lira, exacerbating inflation and making it harder for people to afford basic goods and services.
(The banking sector may also suffer, as deposits decline as people move to dollar-denominated digital assets for savings, which could impair lending capacity and potentially lead to a credit crunch.) )
Any government will face great difficulties regulating an economy that increasingly operates on proxy dollars. Switching to stablecoins could undermine tax collection, anti-money laundering efforts, and government-wide oversight. The transition from the Turkish lira to stablecoins may bring short-term stability to personal savings, but it poses long-term uncertainty for Turkey’s monetary policy, financial stability, and long-term economic health. It may lead to sex.
Stablecoins are popular
Turkey is not the only country where stablecoin signals are changing. While it’s certainly true that much of the world’s stablecoin activity is automated bot-to-bot speculation and trading, a detailed study of Visa’s trading volume shows that around 90% of trading volume comes from their trades. It is shown that it is something. The term “inorganic” — there is no doubt that stablecoins have real utility. That is, to support trade and commerce and (therefore) prosperity.
Writing in the Harvard Business Review, Christian Catalini and Jane Wu say that companies that dominate the stablecoin market will wield significant influence over the future of money. I certainly would. I’ve previously said that digital currency is the new space race, and with USD stablecoins emerging as an instant digital currency alternative to banking networks, it’s up to America to win it. It seems to me that it would be profitable. Cross-border transactions without the volatility associated with cryptocurrencies.
