Why are the United States claiming stablecoins as currencies?

As the SEC continues its hunt for crypto exchanges, the United States has decided to put the potential of stablecoins at the service of its economic policy. This is what can be deduced from a speech by U.S. Federal Reserve Chairman Jerome Powell, who acknowledges that stablecoins are a form of currency. Where does this sudden interest in stablecoins come from?

The FED confirms stablecoins’ potential for the future of finance

While cryptocurrencies are facing severe regulation in the USA, the FED now acknowledges stablecoins as a form of currency. This means that stablecoin-related work and projects in the USA will no longer proceed without the institution’s watchful eye. In his statement, Jerome Powell, US Federal Reserve President, declares:

“We view stablecoins as a currency. […] We think it would be appropriate to have a fairly strong federal role when it comes to stablecoins in the future. To allow ourselves to have a minor role and allow many private currencies to be created at a state level would be a mistake.”

In fact, while cryptocurrencies are fundamentally subject to volatility, stablecoins have a rather fixed share price, backed by that of a fiat currency which could be the dollar, euro, yen, etc.

Stablecoins are reliable assets that create a secure bridge between fiat currencies and the crypto market. They also stand out for their unmatched ability to facilitate domestic and cross-border payments and money transfers.

FED boss Jerome Power’s comment therefore simply appears to be an acknowledgement of their potential, and by extension that of cryptocurrencies, for the future of finance. By acknowledging them as a form of currency, the FED is asserting its determination to play a central role in the stablecoin economy.

Stablecoin recognition: are the United States playing catch-up?

Keeping track of MasterCard, PayPal and MoneyGram and the impact of their recent initiatives in the crypto world, one gets the impression that the United States is playing catch-up on the stablecoin situation.

For example, MasterCard is currently working on linking stablecoins, CBDCs and tokenized bank deposits in payments. The company recently created a forum bringing together several big names in the crypto industry, including Ripple, to get discussions started on CBDCs.

Meanwhile, PayPal now has its own 100% regulated stablecoin, the PYUSD, issued by Paxos, while MoneyGram now counts Stellar among its board members.

The interest shown by these companies in stablecoins is a clear indication that these digital currencies will play a central role in the new global economy currently under development. So it’s only natural that the United States is rushing to take steps to control their issuance and regulation.

🟡 Pendant son discours, Jerome Powell a indiqué que la Fed (Réserve fédérale des États-Unis) voyait les stablecoins comme une forme de monnaie 🔥

Pour rappel, les stablecoins sont des cryptomonnaies adossées à une monnaie, comme l'usdt et l'usdc le sont avec le dollar. pic.twitter.com/FqNdeRQfnE

— Tagado Bitcoin & Crypto (@TagadoBTC) June 21, 2023

Stablecoins: an American policy to preserve the US dollar’s status?

Did you know that, according to statistics published by the IMF, between 1999 and 2022, the US dollar’s share of global foreign exchange reserves fell from 70% to 58%, while its share of reserves held by foreign central banks declined?

This reflects the desire of governments and central banks to reduce the dollar’s influence on their economies and diversify their portfolios. Not to mention the fact that for some time now there have been rumours of the creation of a new payment system by the BRICS to do away with the dollar. Clearly, this is not good news for the US currency.

In this context, stablecoins could serve to breathe new life into the US dollar, whose hegemony has, for some years now, been severely tested by the gradual de-dollarization of international trade.

That being said, the importance of stablecoins to the dollar’s status has been clarified by several crypto industry executives, such as Brian Brooks, ex-CEO of Binance.US and General Counsel of Coinbase.

He believes that dollar-backed stablecoins can help the dollar retain its status as the world’s reserve currency and contribute to the fight against the de-dollarization of the world.

Brian Books told CNBC that “citizens in high-inflation countries are demanding a lot of dollar-denominated products to protect their money” and that “stablecoins are the best solution in those countries where it’s impossible to open a dollar bank account”.

For the executive, the US government’s creation of “a framework for dollars to support stablecoins in a regulated way” will encourage “increased demand for dollar-backed stablecoins”.

It will be, he adds, “a way for us to make the dollar relevant again as governments around the world seek to decouple from the currency”.

In short, the aim of recognizing stablecoins as a form of currency is clear. As Brooks points out, “it’s really a pretty big political issue. It’s not about crypto. It’s about the role the US plays in the financial system.

The SEC still at war with stablecoins

So far, the FED’s stance on stablecoins is fundamentally at odds with that of the Biden administration, which is hostile to cryptocurrencies, and the SEC, which has continued its hunt for crypto exchanges since the fall of FTX.

Clearly stung by the millions of dollars lost by investors on crypto platforms, US regulators are also after stablecoins. For example, the NYDFS recently forced Paxos to suspend issuance of BUSD, Binance’s stablecoin, after qualifying it as a security.

So, if stablecoins are to thrive in the US, the FED and US regulators will have to align themselves on the same definition of securities. In addition, we’ll have to hope that the SEC doesn’t use stablecoins as a weapon to “kill cryptocurrencies”, as Brian Books notes.