Below is an opinion piece by Tom Howard, head of financial products and regulatory issues at Coinlist.
The offshore business has been in circulation with Stubcoin ACT Draft, which effectively bans other non-US stubcoin issuers from the tether and other US markets.
This approach is a critical policy error.
Robust global reserve currency thrives export That in itself doesn’t head to a foreign market and bring it back home.
When trying to force all USD-controlled stubcoins into US banks to re-shore deposits, the key financial principle known as the “triffin dilemma” is ignored.
Reuse of innovation is a good economic policy, but reuse of USD is related to monetary policy and is generally undesirable for the country.
In fact, Stablecoin’s innovation represents an opportunity to export even more US dollars offshore and increase the strength and liquidity of USD as a global reserve currency.
But why can’t the above be achieved with US publishers?
The market wants Stablecoins not issued in US
It is clear that USDT is the global stubcoin of choice in the non-US market, from Asia to Africa to Latin America. This is not due to lack of effort from our second competitor, Circle.
My user research building Stablecoins and Stablecoin wallets found that US banks stubcoins are often seen as a direct extension of the US government, while non-Stablecoins are considered more autonomous. Aside from practicality, this is ground-based perception.
In many cases, users choose to use Stablecoins because their government is abusing financial or banking policies and are strongly afraid of potential government abuse. They want access to USD, but they don’t have exposure to US banking.
These fears are perpetuated only by events as big as the overuse of sanctions powers and more general issues with remittance freezes in cross-border payments or remittance payments.
Stablecoins demonstrates substantial usage data that users increase their confidence that their money is safe and prefer non-US publishers over US publishers in their actual usage data. This preference was clear even before Tether began publishing spare audits.
Tether may recognize that moving the system entirely into US banking will result in a significant loss of user base and opening up market opportunities for other market participants to meet their clearly distinguished demands.
What does “prohibited” mean?
Several different drafts are in circulation and can affect different types of bans.
First, registered stubcoins other than the US will be prohibited from issuing stubcoins from the US. Of course, this is correct. Stubcoins issued by the US should definitely be regulated by the US!
Another ban is “for use” of unregistered Stablecoin. This means anything from using through payment providers to trading on exchanges, to trading individuals. Such a prohibition limits the market’s choice of what they want to use, and can have negative international externalities and even be unenforceable.
The third type of ban is excluded from financial services with US entities. In this case, a violation of compliance requires that a US financial institution overboard all activities, including the purchase of US Treasury bonds. In the case of Tether, this would be a sale of more than $100 million by the US Treasury.
Any kind of ban will backfire
USD liquidity decreases worldwide: trading bans will reduce stable liquidity against the dollar. This harms users through increased transaction costs and weakens the global demand for USD. inflation risk: reduced risk of holding foreign banks USD, increasing inflation rate at home risk: foreign enemies can take advantage of unskilled market demand for creating USD dollar stubcoins supported by non-USD assets
Reuse of foreign bank US dollar reserves
If forced to transfer reserves to US institutions, Tether could bring a significant amount of US dollars back to the US, exacerbating domestic inflation. Meanwhile, international demand for offshore US dollar tokens has been sustained, urging competitors to quickly meet the tether void overseas.
When USD is pulled back from international distribution to domestic banks, the supply of lending from domestic banks increases, which can contribute to inflation.
This also reduces the holdings of US dollars of foreign banks, which are important for international US dollar liquidity and helps increase foreign trade. They also create more buyers for the US Treasury Department as these banks invest their deposits in risk-free products.
Apart from tethers, other publishers may increase the USD market for certain segments. Countries like Cambodia, for example, are notorious for having an “dollarized” economy. So, they issued their own currency, but the economy actually operates primarily in cash and US dollar trading.
If a company or bank in such a country wants to have digital dollars to increase the adoption of US dollars within its economy, Stablecoin innovation is a great way for them to achieve this. It is unlikely that such stubcoins will operate under the same standards as US or EU stubcoin regulators. However, as the US increases its reserves of foreign banks US dollars, it remains advantageous to encourage these stables to exist.
Enemies can replace USD
As Tether and other Stablecoin businesses have discovered, the market for Stablecoins, which is not published in the US, is important.
The ban on non-US issuers can create an opportunity for foreign enemies to replace the US dollar by providing a token controlled by USD backed by foreign currency, gold or other assets.
This effectively consumes US dollar demand while evacuating US dollar supply.
China is already actively developing financial alternatives, as demonstrated in recent deals with the Chinese government.
If given market opportunities, China can introduce stub coins controlled by USD backed by fully controlled gold or yuan. Other countries can take advantage of the opportunity as well.
In fact, US policies need to encourage more US dollars in foreign bank reserves to strengthen US dollars around the world.
I’m on a better path
These pitfalls can be avoided by amending the Stablecoin Act to create exemptions from foreign-issued Stablecoins.
These stability ensure that they are operated, traded and utilized within the US, but clearly label them as unregistered, high-risk alternatives compared to fully US-regulated stubcoins. US registered stubcoins empower you to have profits worth the reduced risk.
Such exemptions:
We encourage global innovation to meet offshore USD demand. Promotes global use of USD without importing inflation pressure.
This can even be achieved by explicitly excluding foreign issuance stylistic forms from the definition of “stable payment coins” or by carving out a light registration process that requires a higher standard (or advantage) associated with US approved stability.
Rather than banning stable stations like Tether completely, the US can strategically strengthen the dollar’s global position, protect the risk of inflation, and encourage continued innovation in financial technology around the world.
It is mentioned in this article
