Some experts have expressed concern that U.S. actions targeting stablecoins could threaten the U.S. dollar's (USD) global prominence, but Benn Steil, a senior fellow and the director of international economics at the Council on Foreign Relations (CFR), told the Federal Newswire that he believes the USD will not be weakened by stablecoins pegged to other currencies.
"The 'United States’ ability to project stability and influence over global affairs' is not aided by the proliferation of assets claiming, misleadingly, to be safe surrogates for actual U.S. dollars. It is implausible that investors seeking blockchain-based surrogates for U.S. dollars will be happy with euro, yen, pound, franc, or RMB surrogates simply because unregulated USD surrogates are unavailable," Steil said.
The U.S. Securities and Exchange Commission (SEC) has stepped up its enforcement actions in the crypto industry after the November bankruptcy filing of crypto exchange FTX, and it recently turned its attention to stablecoins, Reuters reported. In February, the SEC told the blockchain platform Paxos Trust Company to stop issuing the stablecoin Binance USD (BUSD), asserting that stablecoins are securities and BUSD should have been registered as such. Some crypto experts suggested that the move against BUSD, which is the third-biggest stablecoin in circulation, is evidence that the SEC is trying to bring more of the digital asset ecosystem under its control in the absence of comprehensive legislation detailing how stablecoins should be regulated.
"Within the broader enforcement trends that we're seeing, the SEC is really asserting a lot of jurisdiction and it's trying to bring as much of this activity within its control, I think as it can reasonably do at this point," said Jason Allegrante, chief legal and compliance officer at the digital asset platform Fireblocks.
Georgia Quinn, who spoke in front of the president’s Working Group on Financial Markets in November 2021, wrote in an opinion piece for Law360 that it is critical to understand that stablecoins are a technological evolution of fiat currency, backed 1:1 by currency held in reserve. As such, they are not subject to the volatility that can affect other types of cryptocurrencies, and they do not pose a risk of destabilizing the U.S. financial system, as some lawmakers have expressed concerns over. Instead, Quinn wrote that stablecoins present an opportunity to solidify “the global prominence of the U.S. dollar in a new, digital era.”
More than 90% of the stablecoins in the world are backed by the U.S. dollar. Amidst current global geopolitical tensions, American leadership in the realm of stablecoins can serve as a national security tool to ensure that the dollar retains its prominence in the global digital asset market. However, Quinn warned that if the U.S. does not embrace stablecoins, other countries will step up, and other currencies could supplant the dollar, “allowing for other countries’ trade denomination and reserves to become the new de facto choices.” Quinn wrote that if the world’s stablecoin market is driven by the U.S. dollar, it will support America’s role as the leader in global capital markets, monetary policy and the digital asset ecosystem.
Many countries are developing or have piloted central bank digital currencies (CBDC), which are similar to stablecoins, except instead of being privately issued, they are issued by a reserve bank or monetary authority that oversees a country's currency and commercial banking system, according to McKinsey. Some CBDC development is part of an effort to give more citizens access to central bank money, while some is the result of concerns about what impact private stablecoins could have on traditional monetary policy. McKinsey predicted that the evolution of private stablecoins and CBDC will shape the future of commerce.
Michael Greenwald, a former fellow with the Belfer Center, wrote in an opinion piece that the U.S. dollar’s global dominance is at risk of crumbling if the U.S. does not prioritize the development of a CBDC. The U.S. has already fallen behind China and many other countries in terms of a CBDC. In order to preserve the strength of the dollar, “U.S. policymakers must prioritize ‘dollar innovation’ as a key national security objective on par with a great power competition strategy.” Greenwald wrote that the dominance of the dollar is a key pillar upholding U.S. global leadership, enabling it to impose sanctions and “imprint our values” in areas such as money laundering. While China’s attempts to supplant the dollar have so far been unsuccessful, its CBDC could give it the edge it needs to “eschew reform and threaten the dollar with seamless international payments through the digital yuan.” Greenwald called on the Biden administration to take several steps to ensure the U.S. is not left behind as the world transitions to a digital economy, including working with the EU to establish global standards and accelerating research on CBDC technology.
“The dollar’s global use is a national security asset critical to U.S. geopolitical power and economic influence, and the digital yuan’s threat must be elevated on policymakers’ agenda,” Greenwald wrote.
Steil is also the head writer of CFR's economics blog, "Geo-Graphics." Before joining CFR in 1999, Steil directed the International Economics programme at the Royal Institute of International Affairs in London.
