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Federal Reserve Chair: Stablecoins Could Bolster the Dollar as Global Reserve Currency

Christopher Waller of the Federal Reserve suggests that the rapid growth of cryptocurrency could threaten the dominance of the dollar, but this is unlikely due to the popularity of U.S. dollar stablecoins.

Federal Reserve Governor Christopher Waller states that the popularity of U.S. dollar stablecoins in decentralized finance (DeFi) might help cement the dollar’s dominance as a global reserve currency. Speaking at a central banking-focused conference on February 15, Waller noted that approximately 99% of stablecoin market capitalization is tied to the U.S. dollar. Waller mentioned that people often speculate that cryptocurrencies like Bitcoin might replace the U.S. dollar as the global reserve currency. However, he pointed out that most DeFi transactions utilize stablecoins predominantly linked to the dollar.

Cryptocurrencies are practically traded against the U.S. dollar, suggesting that any expansion of trade in the DeFi world could simply reinforce the dollar’s dominant role. The two largest stablecoins by market value, Tether (USDT) and USD Coin (USDC), together account for 90% of the total stablecoin market cap of $139.5 billion, according to CoinGecko. These stablecoins play a crucial role in DeFi, providing traders with a liquid and relatively stable price asset to engage in on-chain activities without exposure to more volatile digital currencies.

Waller noted that the rapid growth of crypto could reduce reliance on the U.S. dollar, potentially challenging its international status. However, he also stated that there is no significant erosion in the dollar’s dominance, saying, “I do not expect the U.S. dollar to lose its position as the world reserve currency anytime soon.” Recent developments, which some have warned could threaten this status, have, at least for now, reinforced it.

Lawmakers are nearing the passage of a stablecoin bill after over 20 months of effort to reach an agreement with House Financial Services Committee Chair Patrick McHenry, with Representative Maxine Waters telling Politico on February 7, “We’re getting very close on stablecoins.” Federal Reserve Chair Jerome Powell told Congress last June that the central bank views stablecoins as a form of money and wants a strong federal role in their oversight in the future.

Months later, in September 2023, the Federal Reserve Banks of Boston and New York claimed that stablecoins could introduce instability to the U.S. financial system.

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