Stablecoins are not Fintech experiments, Web3 gimmicks or DeFi toys.
They are shaping up to be most powerful US monetary export since the petrodollar.
For decades, the US Dollar’s global dominance has followed a simple playbook.
Make it unavoidable through trade, infrastructure and trust.
It started in 1944, when the Bretton Woods agreement pegged global currencies to the dollar, backed by Gold.
The dollar became the anchor of the post-war financial system.
In 1971, President Nixon cut the dollar’s backing to Gold and since then, the dollar has been backed by nothing but trust.
By 1974, the US secured a petrodollar deal with Saudi Arabia.
Price all barrels of oil in US dollars in exchange for military protection.
Nation states therefore needed dollar reserves to purchase any oil to power their growth.
Through to the 2000s and the emergence of the SWIFT & ACH payment systems locked the dollar into every corner of global trade and finance.
The US has maintained this grip by controlling its dollar and the instruments that surround it.
Treasuries, short for US government debt, are particularly compelling, offering yield, liquidity and safety to global holders.
Today, challengers like China and Russia are pulling back, offloading US Treasuries and reallocating reserves as a form of economic resistance.
But the US has found new demand to fund its position of economic dominance.
Stablecoin issuers.
“Show me the incentive and I will show you the outcome.” — Charlie Munger
Stablecoin issuers operate on fundamentally different incentives than traditional banks.
To maintain a 1:1 backing of issued tokens, recorded as Liabilities on their Balance Sheet, they are required to hold equivalent reserves.