Cryptocurrencies called stablecoins mark a significant, transitional step in financial systems.
In the ever-evolving world of finance, stablecoins are making waves as a potential game-changer for the global monetary system. According to David Birch, Principal at 15Mb, these digital currencies have the potential to upgrade the economy itself, if governments harness the technology wisely.
The surge in the value of issued stablecoins is undeniable. From $120bn 18 months ago, the total value has doubled to a staggering $250bn today, as per McKinsey's latest estimates. Tether, a blockchain token pegged to the dollar, entered the market in 2014, providing traders with a digital dollar that could move at blockchain speed without relying on banks. Recent examples include the St. Cloud Financial Credit Union planning to introduce the Cloud Dollar by the end of 2025.
The creation of the first stablecoin on blockchain technology is a topic of ongoing research, with no clear attribution to a specific individual or entity. However, the development and launch of stablecoins have been a consistent trend, reflecting the growing interest in this technology.
The 21st century has seen the proliferation of digital forms of cash, with bitcoin entering the national consciousness. If states adopt the technology as central bank digital currencies, they could unlock enormous economic gains. For instance, if China issues a widely adopted digital renminbi stablecoin, trade might settle in Beijing's coin rather than Washington's.
Stablecoins are not just a payments story - they're a geopolitical one as they can extend a country's monetary reach globally. The real nightmare scenario for policy-makers may not be a foreign central bank but transnational big tech.
Interested individuals can subscribe to OMFIF's newsletter for more information on this topic. OMFIF is also hosting an event on 26 September in Washington DC to chart the next phase of the SEC's Crypto Task Force.
Looking back, we can see parallels in the evolution of finance. In 18th century Britain, private manufacturers minted 'tradesman's tokens' that became the most popular form of retail payment for decades due to the Royal Mint's inability to produce enough small coins during the Industrial Revolution. Similarly, Renaissance merchants pioneered bills of exchange to avoid hauling gold around Europe, and these private instruments powered long-distance trade, backed not by a king's decree but by reputation.
McKinsey forecasts that the total value of issued stablecoins will reach more than $400bn by year-end and $2tn by 2028. As the world continues to embrace digital finance, the role of stablecoins in shaping the future of global economics is undeniably significant.
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