The United States is facing a severe test, primarily manifested in the continuous increase of national debt, leading to a crisis that could have been avoided.
If no action is taken, the economy will stagnate, and the government’s commitments to healthcare and retirement pensions will be broken, while national defense will be compromised.
With economic contraction, the confidence in the US dollar will be hit, hindering economic growth. There are many main reasons for this, one of which is the need for reform in aid programs, but politicians lack the courage to take action.
What can be done?
One solution is to take stablecoins seriously. According to the Treasury Department and DeFi Llama, US dollar-backed digital currency projects are important buyers of US government debt. If these issuers were a country, they would rank just below the top ten holders of government securities. With the development of this industry, stablecoins could become the main buyers of US government debt, providing a reliable new source of demand.
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The United States benefits from the status of the US dollar as the primary international reserve currency, providing cheap financing for fiscal expenditures and having significant global financial influence. However, countries such as China and Saudi Arabia are reducing their holdings of US debt instruments and seeking alternatives to the US dollar system, which increases the risk of failed US debt auctions and weakens confidence in the United States.
US dollar-backed stablecoins provide a solution
Most of these stablecoins are held by economically weak investors who are looking for “better” forms of currency. As Timothy G. Massad pointed out, stablecoins are similar to the Eurodollar that strengthened the dominance of the US dollar during the Cold War.
Promoting US dollar-backed stablecoins will increase the demand for US debt, thereby reducing the risk of failed auctions. Unlike China’s digital financial infrastructure, these stablecoins are issued on public blockchains, aligning with America’s values of freedom and openness. A robust regulatory framework supported by Congress will expand the use of digital dollars at critical moments, providing much-needed political success.
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