The initial regulated stablecoin linked to the international variant of the Chinese yuan (CNH) for foreign exchange markets, along with a South Korean won (KRW) stablecoin, launched this week as the global stablecoin competition intensifies.
AnchorX, a financial technology firm, introduced its AxCNH yuan-pegged stablecoin on Wednesday at the Belt and Road Summit in Hong Kong, as reported by Reuters, following a shift in China’s regulations favoring stablecoins for international usage.
This stablecoin aims to enhance cross-border transactions with nations participating in the Belt and Road initiative, a vast infrastructure undertaking establishing physical roads connecting China to the Middle East and Europe, as well as maritime trade routes with other regions.
BDACS, a company focusing on digital asset infrastructure, also announced the launch of KRW1, a stablecoin pegged to the Korean won, on Thursday.
Both KRW1 and AxCHN are overcollateralized stablecoins, ensuring they are fully backed 1:1 by fiat currency deposits or government debt instruments secured by a custodian.
Stablecoins have emerged as a sector of geo-strategic significance, prompting sovereign governments to transition their fiat currencies to digital formats to bolster international demand and mitigate inflationary pressures from currency issuance.
Related: Tether to launch USAT, appoints ex-Trump adviser as CEO
The interplay between stablecoins, fiat currencies, inflation, and government debt
The traditional financial system operates slowly, necessitating robust infrastructure that may be lacking in developing regions, and includes currency controls in specific jurisdictions that hinder fiat demand.
Transitioning fiat currencies onto blockchain platforms, which function 24/7 and provide near-instant cross-border settlements, enhances global demand by making fiat more accessible to the general public, potentially counteracting inflation-driven price increases.
Currency inflation leads to price surges as the demand for the currency doesn’t align with the increased supply from money printing.
Issuers of overcollateralized stablecoins like Tether and Circle address this issue by acquiring government debt instruments and cash assets to back their digital fiat tokens, making these tokens available to anyone with a mobile phone and a crypto wallet.
This essentially allows a broader segment of the global population to become indirect bond purchasers, stimulating the market for these assets, lowering yields on government-issued debt, and alleviating the government’s debt-service obligations.
Tether has now become one of the world’s largest holders of US Treasury bills, exceeding developed nations like Canada, Norway, and Germany.
Advisor to Russian President Vladimir Putin, Anton Kobyakov, recently remarked that the US government is striving to counterbalance its $37 trillion debt with stablecoins and gold to restore confidence in the declining US dollar.
Magazine: Bitcoin vs stablecoins showdown looms as GENIUS Act approaches
