Introduction to StableCoins and Their Geo-Strategic Importance
The first regulated StableCoin, connected to the international version of the Chinese Yuan (CNH) for foreign currency markets, and a South Korean Won (KRW) StableCoin, have debuted this week, marking a significant increase in the global stablecoin race. According to Reuters, financial technology company Anchorx launched the Axcnh Yuan-Pegged Stablecoin at the Hong Kong summit, following a regulatory pivot towards stable coins for international markets.
The stablecoin aims to facilitate cross-border transactions with countries part of the Belt and Road Initiative, an infrastructure project that connects China to the Middle East, Europe, and other regions through physical roads and maritime trade routes. Similarly, BDACS, a digital asset infrastructure, announced the launch of KRW1, a Korean Won-pegged stable coin, on Thursday.
The Interaction Between Stable Coins, Fiat Currencies, Inflation, and Public Debt
Both KRW1 and Axchn are overcollateralized stable coins, meaning they are fully backed by fiat currency deposits or government debt instruments held by a custodian. This is significant because stable coins have become a sector with geo-strategic importance, as sovereign governments put their fiat currencies on digital rails to increase international demand, hoping to compensate for the inflationary effects of currency pressure.
The traditional financial system is slow, requires robust infrastructure that may not be available in developing areas, and is subject to currency controls in certain jurisdictions, hindering demand for fiat currencies. By placing fiat currencies on blockchain rails that operate 24/7 and facilitate almost instant cross-border settlements, international demand increases, becoming more accessible to the average person, which can compensate for price increases caused by currency inflation.
Addressing Currency Inflation and Public Debt
Currency inflation leads to price increases because the demand for the currency is not proportional to the additional supply generated by money printing. Overcollateralized stable coin issuers, such as Tether and Circle, help solve this problem by buying government debt instruments and fiat for their digital tokens, making them accessible to everyone with a mobile phone and a crypto wallet.
In essence, these companies enable people worldwide to become indirect buyers of bonds, increasing the market for these assets, reducing yields on state-based debts, and alleviating the debt burden. Tether is one of the largest holders of US state debt, exceeding the holdings of industrialized countries like Canada, Norway, and Germany.
According to Anton Kobyakov, an advisor to Russian President Vladimir Putin, the US government is attempting to compensate for its $37 trillion debt with stable coins and gold to strengthen trust in the declining US dollar. For more information on the evolving landscape of stable coins and their implications, visit Cointelegraph.
