What risks and possibilities does an increased use of stablecoins entail? Below are some of the key points from the column.
- Stablecoins have gained more acceptance in the U.S. following the introduction of new legislation (the Genius Act) and may soon see widespread use in the payment system.
- Stablecoins are digital tokens backed by a reserve of regular U.S. dollars, designed to maintain a stable value—unlike, for example, bitcoin.
- All issued stablecoins must be fully backed by safe and liquid dollar reserves, making them digital reflections of existing money and not directly increasing the money supply.
- Stablecoins are seen as an alternative to central banks’ planned digital currencies (CBDCs), especially since the private sector is now driving the development rather than the Fed.
- Increased use of stablecoins could strengthen the global position of the dollar and boost demand for U.S. Treasury bills.
- There are risks associated with stablecoins, such as credit risks in the event of issuer bankruptcy and potential financial stability risks if growth is rapid.
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