90% of all stable coins being US dollar denominated is scary; 90% is too much concentration in any asset class. It is not safe or efficient. Remember, a high concentration of US dollar stable coins is a risk to both the actual stable coin and the US treasury market that backs it; if there were a run on the US dollar stable, treasuries would be sold, interest rates would go up, and rates could spiral out of control.
It is easy to criticize such a ridiculous number, but what is the right number? Given the US is the biggest reserve currency in the world, and that it has been for years since Bretton Woods, a case can be made for dollar stablecoins being the highest percentage in the overall mix.
But 90%? Even for the “King” of Reserve currencies this is too big. After all, the US dollar is only 58% of total global foreign reserves.
Yes, there are other reserve currencies. The Australian dollar, British pound, Canadian dollar, Chinese renminbi, Euro, and Yen are official reserve currencies. A reserve currency is any currency countries hold to pay for future imports or other services. The US dollar is huge in the mix because commodities like oil and wheat futures are priced in US dollars.
Given there are other alternatives for reserve currencies aside from the US dollar, 58% of total reserve currencies does not seem to be carved in stone. If 58% of the US dollar as a reserve currency is not carved in stone, 90% share of US dollar stablecoin is surely questionable.
But how can we bring the 58% and 90% closer together, to assemble some sort of rationality? Well, if we split the middle we come up with 75% US dollar stable coin in the stablecoin mix.
Getting to 75% will not be a result of reducing the growth of the US dollar stable. Rather it will be done by the percentage of other stable coins growing equal to US dollar stable, or faster. The other reserve currencies like the Euro, UK pound, Yen, Canadian dollar, and Australian dollar all deserve a place in the stable coin mix.
From a regulatory perspective, this can be done by allowing all stable coins to trade on a global platform. After all, a big draw of crypto is its ability to transcend boundaries. Imagine a place where someone can buy Australian stable directly to pay for Australian imports. Right now, since most trade is done in US dollars, the money must go from the local currency to the dollar. After the goods are paid for, the dollars must be transferred into local currency to pay the bills, or kept in US dollars for future transactions.
This is not efficient. It would be better if the Australian importer could buy stable in the exporter’s currency directly. It is all is less costly, and crypto allows this.
The downside to this is that some markets may not be big enough to create their own stable coin to trade internationally right now. But the Euro, yen, Canadian dollar, UK gilt, and Australian dollar are big enough to have some representation in the stablecoin mix that is bigger than 10%. After all, they are reserve currencies too, accounting for about 40% of reserves.
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