Those of you who are familiar with the cryptocurrency market in general are aware of centrally managed stablecoins – cryptocurrencies that are pegged to a benchmark asset like the US dollar. Examples of these are Tether (USDT) and USD coin (USDC) and there are others like Paxos and DAI, but the first two seem to be the most widely used. Speculators often use them to trade bitcoins, but there are other applications for stablecoins that may be unknown to most.
Stablecoin use cases include low-cost, low-volatility, real-time payments that are competitive compared to what consumers and businesses experience today with fiat currency. They could also make it cheaper for businesses to accept payments and easier for governments to run conditional cash transfer programs (including sending a universal basic income).
A geopolitical event that occurred in early 2021 highlighted the potential usefulness of stablecoins in Myanmar. The opposition government that was deposed in a military coup adopted Tether, a US dollar-backed stablecoin, as its official currency. The deposed government wanted to raise funds from the Burmese diaspora while at the same time restricting banking institutions. Also note the stance that was taken in adopting a stablecoin backed by US dollars, while the ruling military government used the Chinese renminbi.
It is nearly impossible to defend a system in which the bottom 15% of American adults in the bottom 40% of the income distribution are unbanked and in which low-income bank account holders, particularly customers black and Hispanic, pay $12 a month or more for basic access to the financial system. That said, the use of stablecoins could connect the estimated 1.6 billion people around the world who are segments of the population that are unbanked or underbanked in the financial system. However, there is one key flaw…
Every time another currency, be it a stablecoin or traditional government-issued money like the Hong Kong dollar, is pegged to the US dollar, the euro, the yen, etc., it is actually pegging itself. a melted ice cube in the long run. Currency pegs are inherently unstable. As soon as you step in to “stabilize” your currency, your currency is no longer a neutral form of money like we see today with government backed money. It loses its key principles and purposes as a basic unit of account, unit of exchange plus store of value, and instead becomes a politicized weapon used to punish savers by suppressing and manipulating interest rates. When nation-states increase their money supply on a whim (without your consultation, of course), they abuse their monetary policy privilege by absorbing production without returning value.
The excessive reliance of the US dollar on economic sanctions as one of its primary instruments for projecting power over other nations over the past 70 years exemplifies how the United States not only uses the dollar as an economic weapon, but has abused its privilege as a subscriber to the global financial system.
Only Bitcoin has a truly stable monetary policy and issuance/inflation rate. It is a neutral, apolitical and decentralized form of money that is beyond the reach of politics and central bankers. It cannot be used as a weapon to harm other nations and their citizens. This stability is possible thanks to the application of its fixed maximum supply (21 million), by its miners, as well as the difficulty adjustment, which guarantees that new coins are issued approximately every 10 minutes. With the ever-warming geopolitical landscape that we currently find ourselves in, we are beginning to see that states like Arizona and Wyomingas well as countries (particularly in the developing world such as The Savior, India, Russia, Ukraine and others) are creating legal frameworks in their respective countries to recognize the legitimacy of bitcoin as a monetary asset.
In fact, bitcoin is the only stable currency in existence.
This is a guest post by Paul Opoku. The opinions expressed are entirely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.
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