Stablecoins appear to be a re-enactment of the fiat-related issues that bitcoin was able to resolve.
Centrally administered stablecoins — cryptocurrencies tied to a reference asset such as the US dollar — are familiar to those who are familiar with the broader cryptocurrency market.
Tether (USDT) and USD coin (USDC) are two examples, while there are more such as Paxos and DAI. Speculators frequently use stablecoins to trade bitcoin. But they also have other uses that many people are unaware of.
Stablecoin’s Benefits
Stablecoins can make lower-cost, low-volatility, real-time payments that are competitive with what consumers and businesses use fiat currency today. They may also make it easier for governments to implement conditional cash transfer programs and make accepting payments more affordable for businesses.
Stablecoins’ potential utility in Myanmar was emphasized by a geopolitical incident that occurred in early 2021. Tether is a US dollar-backed stablecoin. It is an official currency of the opposition government that a military coup toppled. The overthrown regime sought donations from the Burmese diaspora while restricting banking institutions. It’s also worth noting the stance taken by choosing a stablecoin backed by the US dollar. Despite the fact that the reigning military government used the Chinese yuan.
It’s difficult to justify a system in which 15% of individuals in the bottom 40% of the income distribution unbanks and are low-income bank account users. These are mainly Black and Hispanic customers — spend $12 or more per month for basic financial access. Stablecoins, on the other hand, have the potential to connect the estimated 1.6 billion people worldwide who are unbanked or underbanked to the financial system. However, there is one significant defect.
Currency Pegs are Fundamentally Insecure
When another currency, whether it’s a stablecoin or regular government-issued money like the Hong Kong dollar, pegs to the US dollar, Euro, Yen, or other major currencies. In the long run, it effectively ties to a melting ice cube. When you interfere to “stabilize” your currency, it ceases to be a kind of neutral money, as we see with government-backed currencies today.
It loses its fundamental principles and function as a basic unit of account, a medium of exchange, and a store of wealth, and instead becomes a politicized weapon used to penalize savers through interest rate suppression and manipulation. Nation-states abuse their monetary policy privilege by absorbing production. This is without providing value back when they boost their money supply on a whim (without your consent, of course).
For the last 70 years, the US currency’s over-reliance on economic sanctions as one of its principal instruments for projecting power over other nations demonstrates how the US not only utilizes the dollar as an economic weapon but has also exploited its position as the global financial system’s underwriter.
One True Stablecoin
Only Bitcoin has a completely stable monetary policy and inflation/issuance rate. It is a non-political, apolitical, and decentralized type of money that is outside the grasp of politics and central bankers. It cannot weaponize in order to cause harm to other countries or their populations.
The miners’ adherence to the predetermined maximum supply (21 million) as well as the difficulty adjustment made this stability possible. It ensures the release of new coins roughly every 10 minutes. With the ever-heating geopolitical landscape we now find ourselves in, states like Arizona and Wyoming, as well as countries (particularly in the developing world, such as El Salvador, India, Russia, Ukraine, and others). These are beginning to establish legal frameworks in their respective countries to recognize bitcoin as a monetary good.
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