Among all the cryptocurrencies that have made headlines, there is one very special one that could soon revolutionize the global economy. First, let’s remember that cryptocurrencies are private currencies, recorded on tamper-proof digital files, secured on a blockchain using tokens (so called because they digitally represent a token) and issued by specialized companies.
I am not referring here to speculative cryptocurrencies, which have led to high-profile bankruptcies and sent financiers to prison, nor to the one issued by President Trump, which serves only to organize a transfer of money to his family in exchange for obscure services rendered and insider trading cleverly disguised as political decisions that cause the stock market to fall, before being canceled immediately after informing a few insiders who had subscribed to this presidential bitcoin.
I am referring here to a cryptocurrency that is apparently completely useless, since its value is not supposed to fluctuate, but is designed to maintain a stable value, indexed to a fiat currency such as the dollar or the euro, or to gold. These stablecoins (e.g., Tether, USD Coin, True USD, Paxos, and many others) are issued by specialized companies. For each stablecoin worth one dollar, the equivalent of one dollar is held in reserve by the issuing company and invested in US Treasury bills or euro or gold bills. The guarantor of the stablecoin’s value is therefore no longer the central bank, but the credibility of the country’s Treasury bills. These stablecoins can be purchased in exchange for bitcoins, which can be obtained in many places.
These stablecoins do not, in principle, serve any particular purpose, as they cannot be used for speculation and are merely the equivalent of fiat currency. Their volume should therefore not have grown. And yet, this volume has continued to grow, even when the cryptocurrency market collapsed in the wake of scandals.
In fact, the first stablecoins were initially used to organize exchanges between traders with a fixed value, or as collateral during their exchanges to protect them temporarily during periods of market fluctuations. Then, little by little, people all over the world, from all walks of life, realized that stablecoins were much more than just a kind of digital dollar. They realized that they could obtain them without having a bank account and therefore without having to provide the information required to open one; and that they could also acquire them in countries with little or no dollar reserves and then transfer them anywhere via a virtual transaction for free use.
For example, in many parts of the world today, you can buy tokens with local currency at an ATM and then convert them into stablecoins purchased online from one of the issuing companies mentioned above. You can then use them however you want.
Over the past few months, we have gradually seen such stablecoins appear among the poorest people in countries with high inflation and where it is very difficult to obtain foreign currency, either because the country’s central bank does not have enough, because the currency is not convertible, or for any other reason.
Some of the issuing companies cheated and did not buy the promised dollars, ruining those who believed they would obtain virtual dollars. They went bankrupt. The others seem to have learned their lesson, even though global regulations are not yet in place.
The use of stablecoins has therefore begun, albeit tentatively. Not for criminal activities, since these tokens are fully registered and can be traced on digital networks, but to protect the value of savings and for simple transactions, more specifically for transferring migrants’ income to their countries of origin.
We can imagine this going much further, with millions of people in a country gradually transferring their transactions between themselves and with other countries to the dollar, without their governments being able to do much about it. This would lead to a bottom-up dollarization of the economy, without any central decision. We can even imagine that, little by little, a very large part of global trade would be organized in stablecoins, i.e., virtual dollars backed by US Treasury bills. Some large countries could see their national currencies disappear: Brazil, Nigeria, Indonesia, Turkey, and India are natural candidates for such a transformation.
The countries most advanced in the digitization of their currencies, the US and China, will be the first to offer them to others. The US government would thus rid itself of the cumbersome supervision of its central bank, and the Chinese would circumvent the requirements of the single party. It is conceivable that the euro could join the dance, because it is at least as strong as the dollar.
It is also conceivable that these issuing companies would, in a fully transparent manner, invest only part of their revenues in Treasury bonds and also become lenders, creating a tremendous leverage effect that would be completely external to the current global monetary system. We would have moved from the current shadow banking system to a shadow monetary system.
I am convinced that such instruments can become major players in the globalization of markets, despite all attempts to fragment them; that they can give the poorest people the means to protect and enhance their savings, and make trade work through micropayments between micro-enterprises with resources that are unimaginable today.