Cryptocurrencies and Stablecoins Will Strengthen but Won’t Threaten the Dollar, Fed Official Says

The official said that the use of the United States dollar stablecoin in the decentralized financial sector was a good thing because it could strengthen the United States dollar.

A U.S. Federal Reserve official said that the increased use and adoption of the U.S. dollar stablecoin could benefit the dollar’s position as the world’s dominant currency. Christopher Waller, a member of the Board of Governors of the Federal Reserve, said that the decentralized financial sector is good for the United States.Antminer Miner

Stablecoins and DeFi are good for the dollar

Speaking at a recent event in the Bahamas, Waller said that the adoption of DeFi would support the dominance of the U.S. dollar due to the industry’s reliance on stablecoins. Waller said that many often “speculate that cryptocurrencies such as Bitcoin could replace the U.S. dollar as the world’s reserve currency”. However, he noted that much of the market capitalization of the DeFi space is dependent on the value of the dollar. He then adds:Bitmain Miner

“As a result, any expansion of trading in the DeFi world is likely to only strengthen the dominance of the US dollar.”

Waller’s view appears to be quite different from many others who believe cryptocurrencies threaten the dollar. Even Waller has previously argued that a future shift away from the dollar to cryptocurrencies could jeopardize monetary policy. However, his recent remarks seem to conclude that this scenario may not actually lead to a weaker dollar.

Earlier this month, Rep. Maxine Waters, a California Democrat, said in a statement that she was interviewing U.S. lawmakers who are working on stablecoin regulation. Waters noted that lawmakers are “very, very close” to reaching an agreement, but didn’t specify the details or timeline for upcoming regulations. She did mention, however, that the deal could give the Federal Reserve oversight authority, which Maxine has been negotiating with House Financial Services Committee Chairman Patrick McHenry (R-N.Y.) for nearly two years.

Other stakeholders agree that stablecoins need to be regulated. U.S. Treasury Secretary Janet Yellen said at a congressional hearing that the regulations would address the cryptocurrency market and protect investors from market risks. She did specify that the regulations should target stablecoins and “non-securities crypto assets”.

USDT and Crime

Tether’s USDT is the world’s largest stablecoin and the third-largest cryptocurrency by market capitalization, with a recently reported $5.4 billion in excess equity and cash equivalents covering 90% of all tokens issued in the fourth quarter of 2023. A recent report from independent auditing firm BDO confirmed that Tether Holdings Limited increased its excess reserves by nearly $2.2 billion last quarter, bringing the total to a record high of $5.4 billion. The company’s excess reserves came from a large net profit of $2.85 billion realized in the year to December 31, 2023, the report said. About $1 billion of that comes from accrued interest on U.S. Treasuries, with the rest coming from Tether Holdings’ gold and bitcoin (BTC) reserves.

While Tether’s numbers are impressive, its reputation has taken a bit of a hit. According to a January report from the United Nations Office on Drugs and Crime. The USDT stablecoin is the cryptocurrency of choice for illicit activities in Asia. The report notes that criminals are using USDT for fraudulent activities, including money laundering and piggy banks, a growing love scam.