The Russian-Ukrainian war has created an opportunity for stablecoins to be used as both an illicit store of value and a legitimate store of value for those interested in preserving savings through a crisis. highlights this trend, with the share of stablecoin trading volume, primarily in Russian services, rising from 42% in January last year after the invasion to 67% in March, and has continued to rise since. I discovered that it continues. But given the illicit use of stablecoins and blockchain-based currencies, we also see the demand for robust financial systems that function in times of geopolitical stress, sanctions, and high throughput. These issues are also motivating governments to accelerate their search for Central Bank Digital Currencies (CBDCs) that can increase efficiency, reduce transaction costs and shorten settlement times. However, the continued and future operation of CBDCs and stablecoin networks that will be integral to the future financial system will require resilience, whether the architecture is centralized or based on a distributed ledger template. Yes, it requires an extension of a secure cloud-based infrastructure. .
Stablecoins and dollar diplomacy
Since their inception, stablecoins have provided people facing economic uncertainty and geopolitical instability with a way to store value in their home currency. Stablecoin traders and holders are active in regions around the world, but his 98% of stablecoins are denominated in US dollars. According to data from The Block, as of January this year, the total supply of fiat, crypto, and algorithmic stablecoins exceeded US$97 billion, with the rest of the cryptocurrencies shrinking. Nevertheless, it is up from US$85 billion a year ago. market at the same time. It is understandable that the demand for stablecoins is on the rise and that it is gaining momentum following the US dollar. While this stablecoin share is still far from the total number of US dollars in circulation (2.3 trillion US dollars as of the last week of January 2023), it is an important trend to watch for monetary policymakers.
The US dollar has long been the currency of choice for cross-border trade settlements, foreign exchange reserves, and foreign currency denominated debt instruments. As a result of this incumbent status, it has become one of the most stable currencies in the global financial markets and, more importantly, the currency most trusted by governments and institutions around the world. However, global economic conditions have prompted institutional investors to seek investment diversification, increasing demand for USD-pegged stablecoins that offer an attractive alternative to traditional financial instruments. . There has been some discussion about the possibility of the US dollar losing its status as the world’s currency of choice, but it seems unlikely in the short term. will continue to be the preferred peg currency for
Cross-border trading and stablecoins
The October 2022 report released by the Monetary Authority of Singapore (MAS) highlights three key takeaways regarding the current state of cross-border payments. According to correspondent banks, (2) the global average cost of remittances amounts to a whopping 6.4% of the value of remittances, and (3) high remittance costs are “especially for migrant workers and small businesses wishing to send money. It’s a pain, and we want to enter overseas markets through e-commerce.”
The Singapore report recommends several solutions to this cost and speed inefficiency problem, stating that the challenge is to “coordinate faster payment systems, build a multi-CBDC common platform, and/or Blockchain-based payment networks.” These themes get to the heart of the issue: modern citizens need access to cheaper and faster payment methods. Stablecoins and his CBDC can provide part of the solution to this challenge.
CBDC: on the rise worldwide
The trend of growing interest in CBDCs globally demonstrates the desire of governments and private companies to launch the financial system into the 21st century in earnest with digital currencies. According to the Atlantic Council, 114 countries representing more than 95% of global GDP are currently exploring CBDCs, compared with only 35 in May 2020. A new high of 60 countries is also currently in an advanced stage of exploration. They already have government-backed digital currencies in development, pilot testing, or at launch.
There is a growing demand from businesses, consumers and governments to reduce reliance on a single currency or economy for the economic stability of their countries. The result will evolve a “basket of currencies” approach in global finance that includes interactions between stablecoins, CBDCs, cryptocurrencies and fiat currencies. While reading the news about CBDC might make you think that the future of this economy is far away, global data clearly shows otherwise. Because 18 of his 20 G20 countries, along with states in China, are already at advanced stages of CBDC development. e-CNY, a digital currency backed by CNY, has already reached 260 million.
However, much still needs to be done for CBDC to be widely adopted around the world, and some of the leading thinkers on the topic believe that its primary uses are primarily wholesalers, merchants, and governments. US Senator Cynthia Ramis (R-Wyoming), who played a key role in crypto regulation, believes that more likely, consumer digital financial products are actually I think it will become a stablecoin.
U.S. Adoption and Regulatory Landscape
US Federal Reserve Vice Chairman Michael Burr recently made some notable comments about the need to “work with other regulators” on the stablecoin framework. At the same time, there have been some related regulatory conversations about cautioning algorithmic stablecoins UST (Terra) and AUSD (Acala Dollar). One of his proposals currently in circulation in the U.S. House of Representatives is to ban endogenously collateralized stablecoins over the next two years. Beyond this, it is also important to recognize the recent release of a National Institute of Standards and Technology (NIST) report on the security, reliability, and viability of stablecoin architectures.
As these conversations progress, it is important to recognize that continued U.S. financial and economic dominance will depend on innovation and attention to new ways of engaging with global markets. The dollar’s current position and its central role in the stablecoin (and decentralized finance) market could become an integral part of the US strategy for global financial competitiveness in the years to come. Developing a resilient, transparent, cloud-based infrastructure for the CBDC (Digital Dollar) will help strengthen America’s competitiveness and national commitment to responsible innovation. Only helpful.
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