Stablecoin Survival: Navigating the Future Amid Global De-Dollarization

It is an empirical fact that the United States dollar is losing its dominant role as the global reserve currency, but what would happen to the stablecoin market if it were to be removed?

According to statistics From the International Monetary Fund, the US dollar now accounts for just 58% of global foreign exchange reserves, a significant decrease from its 71% share. 2001,

Jeremy Allaire – CEO of USD Coin (USDC) issuer Circle – highlighted this change at the Consensus 2023 conference on April 26, arguing that the US should implement stable currency legislation and seek “very active de-dollarization.” The US dollar must be digitized to remain competitive among Place.”

De-dollarization refers to the process of reducing the use of the US dollar in a country’s economy, and powerhouses such as Russia and China are actively pursuing de-dollarization as they convert the US dollar into digital assets, other fiat currencies, etc. and potentially want to change. A BRICS currency between Brazil, Russia, India, China and South Africa.

As an example of this de-dollarization, the Chinese yuan has recently overtaken the US dollar as China’s most widely used cross-border currency. Bloombergincreased to a high of 48% of transactions after being around 0% in 2010.

The Chinese yuan has overtaken the US dollar as the most widely used currency in China’s cross-border transactions for the first time in history.

Yuan-share rose from almost zero in 2010 to a record high of 48%.

The US-share dropped from 83% to 47% over the same period.

Very good. pic.twitter.com/Lm3Rygpm45

— Genevieve Roach-Decter, CFA (@GRDecter) April 26, 2023

Another example that may be more familiar to crypto users can be seen in El Salvador, which in 2021 became the first country in the world to use Bitcoin (BTC) as legal tender.

Following the news that crypto exchange Coinbase is launching a derivatives exchange in Bermuda, some crypto proponents such as venture capitalist David Sachs have even suggested that the US block crypto firms from accessing bank services in the country. may attempt to prevent a willful attempt to Fears abroad that crypto could further eat away at the dominance of the US dollar.

Speaking to Cointelegraph, Dr. Joachim Schwerin – chief economist at the European Commission – suggested that changes to the world’s major reserve currency occur regularly, adding:

“Since we have records on financial data, the role of the globally leading currency has changed every 80 to 110 years. The timing of accelerated global friction that significantly affected trade patterns made such changes very rapid. does.

The US sanctions on Russia are a prime example of this global friction, and on April 16 Treasury Secretary Janet Yellen noted Sanctions could threaten the hegemony of the US dollar as targeted countries seek alternative currencies.

implications for the global economy

Many people are familiar with the video ”Principles to deal with the changing world order’ by billionaire investor and hedge fund manager Ray Dalio, in which Dalio suggested that the major reserve currency was “a key factor in the country becoming the richest and most powerful empire,” an opinion shared by many pundits.

The US used its advantage of US dollar hegemony to build an offensive army to threaten the whole world.

De-dollarization would lead to the collapse of the US dollar, similar to the collapse of Ponzi schemes. pic.twitter.com/GALhzBj0AI

— Richard (@ricwe123) April 18, 2023

One of the main advantages of having a major reserve currency is considered to be the increased level of demand it experiences relative to other countries as it is widely accepted globally and is considered a safe-haven asset. perceived as such, thus making it more valuable.

In response to questions from Cointelegraph, Tether — the issuer of the largest stablecoin by market capitalization tether (USDT) — noted that stablecoins pegged to the US dollar also drive demand for the currency.

The increased demand for the US dollar theoretically makes it more valuable than other currencies, making it relatively cheaper for the US to import goods and services and allowing the country to borrow money at a lower cost.

Yet in response to concerns about what would happen if the US dollar loses its hegemony, many economists cite the words of Nobel Prize-winning economist Paul Krugman, who argued Back in August 2015 that “while reserve-currency status may have political symbolism attached, it is essentially irrelevant as an economic goal” due to its benefits being “a tiny fraction of one percent of GDP”.

Significantly, economists are famous for disagreeing with each other. In an April 11 survey of economists, 50% of them disagree With Krugman claiming that the benefits are only marginal.

Time for innovation in the stablecoin market

According to Coinmarketcap, every stablecoin with a market cap of more than $1 billion is pegged to the US dollar, which makes sense given its dominant position.

As the US dollar continues to lose its dominance, however, these stablecoins may be less useful.

Tether highlighted that stablecoins are “particularly beneficial for citizens in emerging markets that may face high levels of inflation and currency volatility,” or in countries with limited access to financial services, even if The US dollar and stablecoins below this are likely to move into others.

Schwerin said that “large issues are already reaching out outside the US to meet this scenario,” referencing stable coins such as Circle’s Euro Coin (EUROC), which is pegged to the euro:

“There will be a lot of improvisation and experimentation, which is good for innovation.”

Schwerin noted that he did not know exactly what would work, but expressed optimism that the crypto community would be able to find a solution quickly.

Tether said it has “always been at the forefront of innovation,” and pointed to other products, such as Tether Gold (XAUT) — a stablecoin collateralized by gold — as well as other fiat-backed stablecoins.

While stable coins can be designed in very different ways, the most commonly used currently are both fully/over-collateralized and exogenous (backed by external assets).

As long as stable coins have sufficient collateral, their users should not be concerned that the transition from US-pegged stablecoins will cause any liquidity issues, especially when a high proportion of the collateral is in the form of highly liquid assets. is stored.

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