On Oct. 18, Federal Reserve Bank Governor Christopher Waller told an audience at the Institute of Advanced Studies that well-regulated stablecoins could benefit the current financial system.
“Stablecoins can reduce the need for payment intermediaries and thereby reduce costs of payments globally,” Waller stated, but immediately qualified his remarks by saying that stablecoin “Safety is not assured.” The Fed official explained:
"If appropriate guardrails can be erected to minimize run risk and mitigate other risks, such as their potential use in illicit finance, then stablecoins may have benefits in payments and by serving as a safe asset on a variety of new trading platforms."
Waller also noted that decentralized finance can achieve a symbiotic relationship with traditional finance instead of supplanting it altogether. This viewpoint was previously pitched by some US lawmakers, who argue that decentralized finance and dollar-denominated stablecoins can extend dollar dominance by decades.
Stablecoins as a way to extend US dollar hegemony
On June 14, an article appeared in The Wall Street Journal, written by former United States Speaker of the House Paul Ryan, making a case for how stablecoins could mitigate the looming debt crisis.
The growing US government debt. Source: Toby Cunningham
Ryan pointed out that stablecoins create demand for US Treasurys and US dollars, which will keep the dollar competitive against the Chinese yuan and preserve its current status as the global reserve currency.
More recently, in October, US Senator Bill Hagerty introduced the Clarity for Payment Stablecoins Act building upon Rep. Patrick McHenry’s 2023 stablecoin bill.
The most notable changes to the bill were provisions to regulate stablecoins at the state level and removing a clause in the 2023 version of the bill that identified stablecoins as securities.
Despite these efforts, a recent report from Chainalysis revealed that the US is lagging in stablecoin adoption. According to Chainalysis, the market share of stablecoin transactions on US-regulated exchanges dropped below 40% in 2024. Comparatively, the share of stablecoin transactions via offshore exchanges rose to 60% this year.
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