This week saw the launch of the first regulated stablecoin linked to the international version of the Chinese yuan (CNH) for foreign exchange markets, alongside a South Korean won (KRW) stablecoin as competition in the global stablecoin arena intensifies.
Financial technology firm AnchorX introduced its AxCNH yuan-pegged stablecoin on Wednesday at the Belt and Road Summit in Hong Kong, as reported by Reuters. This follows a regulatory shift in China that is more accepting of stablecoins for international use.
The stablecoin aims to enhance cross-border transactions with nations involved in the Belt and Road initiative, an infrastructure project designed to create physical connections between China, the Middle East, and Europe, while also fostering maritime trade routes.
BDACS, a digital asset infrastructure firm, also announced the rollout of KRW1, a stablecoin pegged to the Korean won, on Thursday.
Both KRW1 and AxCHN are categorized as overcollateralized stablecoins, indicating they are entirely backed 1:1 by fiat currency deposits or government debt instruments held by a custodian.
Stablecoins have emerged as a sector of geo-strategic significance, as national governments hurry to digitalize their fiat currencies to enhance international demand, hoping to mitigate inflationary effects from increased currency circulation.
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The dynamics of stablecoins, fiat currencies, inflation, and government debt
The traditional financial system is slow-moving, reliant on robust infrastructure that may be lacking in developing regions, and is hindered by currency controls in some areas that restrict fiat demand.
Implementing fiat currencies on blockchain systems, which operate continuously and allow for rapid, cross-border transactions, boosts international demand by making fiat more approachable for everyday people, potentially counteracting price rises linked to currency inflation.
Currency inflation leads to price hikes when the demand for a currency does not match the increased supply due to money printing.
Overcollateralized stablecoin issuers like Tether and Circle address this issue by purchasing government debt instruments and cash assets to secure their digital fiat tokens, making these tokens available to anyone with a mobile device and a crypto wallet.
In effect, these companies provide a means for most individuals worldwide to indirectly invest in bonds, revitalizing that asset market, lowering yields on state-issued debt, and alleviating the government’s debt-service responsibilities.
Tether has become 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 suggested that the US government is trying to manage its $37 trillion debt using stablecoins and gold to bolster confidence in the diminishing US dollar.
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