Last week, the SEC sent shockwaves throughout the crypto industry as NEwS leaked that it charged Paxos for issuing an unregistered security in its BUSD stablecoin—a allegation that the company “does not agree with the majority.” The Securities and Exchange Commission did not provide an explanation for how BUSD, which Paxos claims is fully backed and fully redeemable, can be a security. Nor does it provide any guidance on other stablecoin providers.
Stablecoins—cryptocurrencies pegged to the US dollar—are among the most disruptive technologies to emerge from digital finance in the past decade. But the SEC is at war with them. With rumors that the federal government may now regulate stablecoins as securities, PayPal—the world’s largest online payment processor—recently launched the development of its own stablecoin. stopped.
By adopting a blunt-instrument approach to stablecoin regulation, the SEC is flirting with a dangerous precedent that could hinder not only legitimate innovation but global dollar adoption.
That’s because stablecoins, if properly regulated, have the potential to cement US financial hegemony for a generation. How? By supercharging dollarization.
Last summer, International Monetary Fund economist Eswar Prasad made a bold move prophecy: “It is possible that national currencies issued by their central banks … could be transferred to stablecoins.” This is happening in real time. In countries affected by inflation such as Zimbabwe, Turkey, and Argentina, citizens may watch their wages melt away or seek refuge by converting their native currencies into dollar-backed ones. stablecoins. No wonder many choose the latter.
Consider Latin America as a case study: the region has always struggled with currency devaluation, with inflation. rate last year was 14.6%—one of the highest in the world. Unsurprisingly, the region also has the highest rate of stablecoin adoption. According to a MasterCard study, more than a third of Latin Americans bought using private stablecoins. And in Venezuela alone, stablecoins account 34% in all small retail transactions.
In an unexpected twist, stablecoins act as the hedge against inflation that Bitcoin is supposed to be. If stablecoin adoption continues to accelerate, it could become a trillion-dollar industry by the end of the decade. In the ultimate crypto coup, Uncle Sam may replace Satoshi as the king of digital currency.
Stablecoins bring millions of new participants to the dollar economy. But SEC regulations could shut it down again. If the agency classifies stablecoins as securities, it will present a major obstacle to global adoption—and it will do so at a critical time for US dollar hegemony.
Keep in mind that the SEC’s crackdown on stablecoins comes at a time when a small percentage of the world’s energy transactions take place in dollars, and the digital yuan is on the rise.
Last year, Xi Jinping put an increase pressure of oil-rich leaders to settle oil contracts in yuan instead of dollars, and many of them are on their knees. While the yuan is still years away from toppling the petrodollar, it is clearly coming for the crown. US policymakers should be clear-eyed about China’s global ambitions—and they should recognize that the country has a competitive advantage over the US in terms of digital currency, which has already been launched. own CBDC—called e-CNY—in 2021.
Can the US make up lost ground by launching its own Central Bank Digital Currency? Even if it could, not really. An American CBDC will present a large GROWTH of privacy and will concentrate unprecedented power in the hands of central bankers.
So what are we left with in our competition against the digital yuan? Stablecoins.
All the more reason, then, for the SEC to get stablecoin regulation right.
The agency should see stablecoins for what they really are—not a nuisance to be dealt with but tools for projecting American economic power. With the organic growth of stablecoins around the world, it is right in front of us the biggest opportunity for expansion of the US dollar since Bretton Woods.
If tech is the new oil, then let well-regulated stablecoins replace the dollar in energy transactions, and become the de facto money of the internet. Stablecoins can act as an onramp to the dollar economy for billions around the world, ushering in a new era of US financial dominance. We would be fools not to turn down this opportunity.
However, we can be fools. Despite rising tensions between the US and China, the SEC has yet to grasp the bigger picture. If the agency regulates stablecoins as securities, it will kill the latest to ensure US dollar supremacy for the next decade.
The current geopolitical situation calls for a more holistic approach to stablecoin regulation—one that seeks answers to the following questions: How can we use stablecoins as instruments of statecraft? How can we regulate them in a way that protects consumers but also encourages dollarization? And how can we promote stablecoin adoption abroad to balance the digital yuan?
Stablecoins aren’t a problem—they’re an opportunity. And with the right regulation, we can seize this opportunity to empower consumers, expand American energy power, and plant our flag in the emerging digital economy.
Sam Lyman works at the intersection of policy and innovation. He is an MPP candidate in Princeton, the former chief speechwriter of Sen. Orrin G. Hatch, and the former speechwriter to the President and CEO of the US Chamber of Commerce. The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of luck.
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