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The benefits of tokenized dollars are key for continued U.S. dollar leadership
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The U.S. is currently engaged in a number of geo-political and economic initiatives that are shaking up the global economy like few non-wartime events have in recent memory. A core pillar of U.S. economic leadership leveraged by governments now and in the past is the status of the dollar as the global reserve currency. While there are pros and cons to serving as the global reserve currency – the complexities of which are complicating the translations of simplistic slogans into reality – the fact remains that dollar leadership is an important part of U.S. statecraft, diplomacy, and economic negotiation. Stablecoin legislation and efforts and both the federal and state level are pushing the debates around stablecoins from the back burner to the front burner, but the true implications of increased stablecoin utilization are just beginning to be understood by the wider markets.
Specifically, the passage of the GENIUS Act on March 13 by the Senate Banking Committee has set clear rules for dollar-backed stablecoins. This much needed clarification also has the potential to prevent or at least mitigate the potential for other forms of stablecoins that proved to be more volatile than advertised. Additionally, the fact that legislation is moving forward at the U.S. level and has the support of the administration has accelerated the developed of stablecoin attestation and auditing standards. With virtually all of the over $200 billion stablecoin market comprised of dollar-backed stablecoins, including USDT that still raises questions around the status of reserves, clearer legislation is an imperative.
Let’s take a look at a few of the reasons why stablecoin leadership should be actively encouraged in the U.S., and how it will both sustain and improve U.S. dollar leadership.
Demand For U.S. Debt
One of the key ways that dollar-backed stablecoins can enhance U.S. dollar leadership is by increasing demand for U.S. dollars and U.S. debt, which with a debt load in excess of $35 trillion is not something that can be ignored. With stablecoins able to access deposits at non-bank entities, and to do so somewhat outside of the traditional banking channels, the ability of the U.S. government to influence the flow of tokenized dollars across the global is a realistic possibility. For every new token issued by an (important caveat) U.S. regulated and supervised issuer the demand for U.S. debt and currency increases.
The demand for dollars in emerging markets, some of whom who have been adversely affected by the inconsistent trade rhetoric from both the United States and other nations, also provides an opportunity for stablecoins to solidify the value of the U.S. in emerging markets. As an ever-increasing number of TradFi banking institutions are launching dollar-backed stablecoins, and issuers such as Circle are partnering ever more closely with U.S. regulators, the prospect of tokenized dollars (stablecoins) serving as an important tool in the digital policy toolkit is quickly becoming reality.
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