Let’s get to the point: does the world want to perpetually depend on a reserve currency backed by bonds issued by a government that has chaotic policy, a debt level rising too well over GDP, a commercial system that needs tariffs to compete worldwide, a 30 year long bond that is losing its allure, and a currency that is down over 9% year to date versus other major currencies?
These are not the metrics of a solid currency. But they are metrics of the US dollar. They are also the underlying metrics of the stablecoin market worldwide, as the US dollar represents over 90% of all stablecoins.
The dominance of the US dollar stable in the percentage of overall stablecoins will only get worse. When this happens countries and regions risk suffering economically at the hands of the US. If something goes wrong in the US bond market or economy, the reputations of crypto and stablecoins will suffer. Countries who depend on and put their trust in the US dollar will have serious problems. If a crisis hits, people in countries that have dollarized in crypto will ask governments “why did you do that?”
Bank of England Governor Andrew Baily said the rise of stablecoins risks undermining the public’s trust in money. Governor Baily’s comments reference US dollar stablecoins, because US dollar stablecoins are 90% of the market. They run the risk of undermining the global public’s trust in money.
The problem is not only the concentration of US dollar stable, but the speed at which it is growing. Since the Genius Act passed there have been significant developments around investing and financing in the crypto stable space. A group of tech billionaires have filed to open a new US bank that focuses on startups and cryptocurrency companies. They state their mission is to serve businesses other banks won’t take on.
They will be lending money to crypto companies, which are in essence US dollar stablecoin companies, which in turn will increase the concentration of crypto in all stable. It’s like putting gasoline on a fire.
In the end, US regulation will drive money into US dollar stablecoins, which will increase the demand for US Treasuries, which are the backing for stablecoins. US bond rates may go down, which would allow the US government to borrow more money at a lower rate, or refinance existing debt. This could lead to the US debt level going up to levels normally seen in emerging markets twenty years ago, not the number one reserve currency country.
For now, everybody will go merrily along the US dollar stablecoin path, embracing denial until something bad happens. And the odds are that sometime something bad will happen.
The solution is easy. Create regulation that allows treasury operations, institutional investors, banks, and private investors to hold a diversified portfolio of stablecoins. Presently, in the US stable securities are considered unregistered securities, so this cannot easily happen.
Hopefully the US government will realize that too much into one asset is a risk, especially when the underlying conditions are less than optimal.
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