This week saw the launch of the first regulated stablecoin tied to the international version of the Chinese yuan (CNH) aimed at foreign exchange markets, alongside a South Korean won (KRW) stablecoin, as the global stablecoin race intensifies.
On Wednesday, financial technology company AnchorX introduced its AxCNH yuan-pegged stablecoin at the Belt and Road Summit in Hong Kong, as reported by Reuters. This follows a regulatory shift in China that embraces stablecoins for international markets.
The stablecoin aims to streamline cross-border transactions with countries involved in the Belt and Road initiative, which is focused on linking China with the Middle East and Europe through infrastructure projects and establishing maritime trade routes with other regions.
Meanwhile, BDACS, a digital asset infrastructure firm, also announced the rollout of KRW1, a Korean won-pegged stablecoin, on Thursday.
Both KRW1 and AxCHN are classified as overcollateralized stablecoins, meaning they are fully backed 1:1 by deposits of fiat currency or government debt instruments held by a custodian.
Stablecoins are taking on a geo-strategic role as governments rush to digitize their fiat currencies to elevate international demand, hoping to counteract inflationary pressures from currency printing.
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The interaction between stablecoins, fiat currencies, inflation, and government debt
The traditional financial system is often slow and requires substantial infrastructure that may not be present in developing regions, coupled with currency controls in some areas that limit the demand for fiat.
Integrating fiat currencies with blockchain technology, which operates continuously and enables near-instant cross-border transactions, enhances accessibility for the average person and can counterprice increases driven by currency inflation.
Currency inflation leads to rising prices because the demand for the currency does not align with the surplus created through excessive money printing.
Issuers of overcollateralized stablecoins, like Tether and Circle, mitigate this concern by purchasing government debt instruments and cash assets to back their digital fiat tokens, making them accessible to anyone with a mobile device and crypto wallet.
Essentially, these firms offer a pathway for individuals worldwide to become indirect bond buyers, which enhances the market for those assets, results in lower yields on government-issued debt, and lessens the government’s debt-service burden.
Tether has emerged as one of the largest holders of US Treasury bills globally, surpassing developed nations like Canada, Norway, and Germany.
Anton Kobyakov, an advisor to Russian President Vladimir Putin, recently claimed that the US government is attempting to manage its $37 trillion debt by utilizing stablecoins and gold to regain confidence in the weakening US dollar.
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