Former U.S. Currency Comptroller and others publish: Why the U.S. government should support dollar stablecoins?

Original authors: Brian P. Brooks and Charles W. Calomiris, The Wall Street Journal Opinion section

Compiled by: Wu Says Blockchain

Brian P. Brooks served as Acting Comptroller of the Currency of the United States from 2020 to 2021 and was Chief Legal Officer at Coinbase from 2018 to 2020. Calomiris is the Director of the Department of Economics, Politics, and History at the University of Austin. He served as Chief Economist at the Office of the Comptroller of the Currency from 2020 to 2021.

Stablecoins are blockchain-based assets backed by bank deposits and government bonds, and they are at the core of the dollar-based revolution that developing countries are experiencing. Their price should remain stable, typically at $1. They can be seen as a digital version of prepaid cards, and in a world where the role of the dollar is being questioned, they have the potential to become an important tool of American soft power.

Stablecoins are not just a more efficient means of electronic payment. Some economists and policymakers are concerned about "de-dollarization"—the replacement of the dollar's status as the world's reserve currency—arguing that stablecoins could support a post-war arrangement in which the dollar's dominance helped facilitate global trade and reduce global poverty. But this can only happen if Congress implements a robust and stable regulatory framework.

That is why the stablecoin regulatory bill proposed by House Financial Services Committee Chairman Patrick McHenry is crucial. It will establish federal and state regulations for stablecoin issuers, set qualifications for reserve assets, and implement rules regarding redemption and public disclosure. It is hard to argue against these seemingly bipartisan goals; McHenry (a Republican from North Carolina) has collaborated with Maxine Waters (a Democrat from California) on this bill for over a year. However, in last week's vote on the measure, Ms. Waters and most of her Democratic colleagues withdrew their support, with no clear reason for this sudden change. Did they suddenly find stablecoins unimportant?

Any tool that could enhance the dollar's status should be considered. Over the past few generations, the dollar's share of foreign exchange reserves held by foreign central banks has declined. In 2000, the dollar accounted for nearly 73% of global central bank foreign exchange reserves; now that share is about 59%. Although many international trades and a large volume of commodity transactions are still settled in dollars, this year, major countries including Brazil and Argentina have signed bilateral agreements with China to settle trade in renminbi and their local currencies.

There are rumors that a summit next month, including Brazil, Russia, India, China, and South Africa, will consider creating a new currency arrangement. While the leaders of the so-called BRICS nations deny that a currency union is imminent, Anil Sooklal, South Africa's ambassador to Asia and BRICS, stated that the era of a "dollar-centric world" has "ended," and BRICS intends to settle trade in their local currencies in the near future. This year, Saudi Finance Minister Mohammed al-Jadaan indicated that Riyadh is open to settling oil transactions in currencies other than the dollar—a notion that was once unimaginable.

U.S. policies have not bolstered global confidence in the dollar. The freezing of dollar assets of the Russian central bank following Russia's invasion of Ukraine, while politically understandable, shocked investors and central bankers, who realized for the first time that the dollar might not be as safe as it once was.

A world of de-dollarization is harmful to the United States. The dollar's status as a reserve currency lowers U.S. borrowing costs, which is crucial in an era when government borrowing and spending are at historic highs and still rising. Reserve status also shields the U.S. government, banks, and the public from foreign exchange risk. Other things being equal, reserve status allows American consumers to purchase foreign goods more cheaply because foreign producers prefer to hold dollars rather than other currencies.

The nationalism and anti-colonial impulses behind de-dollarization in developing countries are unlikely to help the citizens of those countries. Argentina's decision to price trade transactions with China in renminbi and pesos may reflect a sense of national pride, but the country's annual inflation rate of 114% means that workers there will still see their purchasing power rapidly decline. Compared to Zimbabwe's inflation rate of 175% or Venezuela's 400%, this is not much. As of the end of last year, 17 countries had inflation rates exceeding 20%, and 57 countries had inflation rates exceeding 10%.

This is where stablecoins come into play. Faced with the bleak prospect of storing wages in local currency in local bank accounts, more citizens in high-inflation countries are choosing to use dollar-based stablecoins as a comprehensive savings account. Dozens of startups in Latin America and Africa offer stablecoin savings and payment options—often in countries where leaders have publicly and overtly abandoned the dollar.

Dollar-backed stablecoins have a market value in the hundreds of billions and support trading volumes far exceeding that amount. In these countries, these products are attractive to ordinary people because they do not need to open accounts at local banks, only an internet connection. Additionally, many stablecoins pay interest and have no minimum balance fees, with low or no transaction fees. Most importantly, they free people from the constraints of authoritarian monetary policies in developing countries, allowing them to store the value of their hard work in relatively stable dollars.

When the U.S. attempts to engage with other governments but fails, stablecoins can directly convey U.S. monetary policy to residents of other countries. If stablecoins thrive, citizens of other countries will increase their demand for dollars, independent of their governments' political decisions (and possibly even contrary to them). But for stablecoins to succeed, U.S. policymakers need to recognize the importance of re-dollarizing the global economy.

McHenry's bill is a good start.