On October 18, Federal Reserve President Christopher Waller told an audience at the Institute for Advanced Study that well-regulated stablecoins could benefit the current financial system.
“Stablecoins can reduce the need for payment intermediaries, thereby lowering global payment costs,” Waller said, but quickly said that stablecoins “are not guaranteed to be secure.” I modified my statement. A Fed official explained:
“If we can build in the right guardrails to minimize execution risk and mitigate other risks, such as possible use in illicit finance, stablecoins will become more secure in payments and on a variety of new trading platforms. It can provide benefits by acting as an asset.”
Waller also pointed out that decentralized finance can achieve a symbiotic relationship with traditional finance, rather than completely replacing it. This view has previously been advanced by some US lawmakers, who argue that decentralized finance and dollar-denominated stablecoins could extend the dollar’s dominance for decades.
Stablecoins as a means to extend the hegemony of the US dollar
On June 14, an article written by former U.S. House of Representatives Speaker Paul Ryan was published in the Wall Street Journal arguing how stablecoins could alleviate the impending debt crisis.
Ryan pointed out that stablecoins will create demand for U.S. Treasuries and the U.S. dollar, allowing the dollar to remain competitive against the Chinese yuan and maintain its current status as the world’s reserve currency.
Most recently, in October, U.S. Senator Bill Hagerty introduced the Payment Clarification Stablecoin Act, which builds on Representative Patrick McHenry’s Stablecoin Act of 2023.
The most notable changes in the bill include the provision to regulate stablecoins at the state level and the removal of the provision identifying stablecoins as securities from the 2023 version of the bill.
Despite these efforts, a recent report from Chainalysis found that the United States is lagging behind in stablecoin adoption. According to Chainalysis, the market share of stablecoin trading on US-regulated exchanges will fall below 40% in 2024. In comparison, the share of stablecoin transactions via offshore exchanges has risen to 60% this year.
