if you dismiss cryptodollars on ideological grounds, think twice
Many sneer at centralized cryptodollars like Tether and USDC. It’s true that these projects are vulnerable to regulatory intervention.
What’s more important is what their explosive growth over the past year indicates.
Over 90% of “stablecoins” are dollar denominated, so “cryptodollars” are the new “eurodollars”. Cryptodollars have grown so fast because they tapped into unmet dollar demand. Dollars are desirable because they are the primary unit of account in international trade, and have historically been more reliable than most other national currencies.
The demand was unmet because many people are locked out of access to the dollar system, or at best can access only physical dollar notes. Before cryptodollars, the only way to access digital dollars was through entities beholden to the conventional banking system, which is dominated by New York.
The United States government uses its dominance over the international finance and banking system as a weapon.
This weapon was used domestically in Operation Choke Point, in which the Obama Administration attempted to restrict banking access for “undesirable” businesses such as firearms and payday loans.
It is (in)famously used as our primary weapon abroad. The United States currently has some form of sanctions on Afghanistan, Belarus, Burundi, Central African Republic, China (PR), Côte d’Ivoire, Crimea Region, Cuba, Cyprus, Democratic Republic of the Congo, Eritrea, Fiji, Haiti, Iran, Iraq, Kyrgyzstan, Laos, Lebanon, Liberia, Libya, Myanmar, North Korea, Palestinian Territories, Russia, Rwanda, Somalia, South Sudan, Sri Lanka, Sudan, Syria, Venezuela, Yemen, and Zimbabwe.
Many people and businesses in the nations above would much rather hold USD than their unstable local currency, but they can’t get access to any, either due to US sanctions or internal capital controls as in China.
Why don’t we want citizens of those countries accessing dollars? The answer is they are denied access to a stable currency so we can put political pressure on their leaders.
Yes, this sounds like a bad thing. Cryptodollars can come to the rescue, and this blog will be cheering them on.
Let’s talk cryptodollar security. The primary criticism of cryptodollar projects is that they are centralized and thus vulnerable to regulators.
This is true. Regulatory action could mean a swift end to Tether or a similar entity. What critics fail to realize is that this will not stop the growth of the sector, because there is no reason a cryptodollar issuer need be based in the United States. One can imagine the “Swiss bank account” of cryptodollar issuers. All you need is one country to provide credible regulatory oversight while permitting cryptodollar issuance. If I were the Tether CEO, I would certainly have a backup location in mind.
Perhaps Wyoming - I haven’t heard this discussed yet, but the full reserve depository structure of the SPDI lends itself to stablecoin issuance. Maybe USDK offered by Kraken Financial and regulated under Wyoming law is but a short way away.