The US Federal Reserve released its latest financial stability report Monday. It ranked cryptocurrencies and stablecoin as top threats to US financial stability for the next 12-18 months.
The Fed ranks cryptocurrencies as stablecoins second to tensions between the US US and China
The Fed publishes its report twice a year. One in spring and one in fall. This current edition contains this chart from page 67. It ranks cryptocurrency / stablecoins fifth among the most serious risks to financial stability. Hidden between the United States, Tensions in China, and climate problems are this chart.
Stablecoins pose a threat to the economy.
Stablecoins were described in the report as digital assets that are issued on blockchain and traded there. They can be linked to stable off-chain assets such as gold, government bonds, or fiat currencies. In the report, it was also stated that stablecoins’ value has increased exponentially in the past 12 months to $ 130 billion by October 2021.
These are the major concerns raised in the Fed publication
- Market cap: The biggest stablecoins promise to be redeemable at anytime at a stable US dollar value, but each token may not be backed up 1:1 with a fiat equivalent. Some stablecoins are also backed by commercial bonds that could lose value or become inliquid. Issuers might not be able meet redemption requests if these assets lose their value.
- Stablecoins are vulnerable to liquidation runs by investors who may empty all their accounts at once.
- These shortcomings may be exacerbated by a lack transparency and governance standards in relation to some assets that support stablecoins, according to the report.
- Finally, there are risks associated with the use of stablecoins for payments and their potential growth.
The Fed members included these FUDs in their report, regardless of whether they are real or exaggerated. It could be argued, however, that the four bullet points listed as stablecoin vulnerabilities can also apply to all fiat currencies, including US dollars. This is particularly true when it is viewed within the context of recent government fiscal and monetary policy.
As mentioned in the previous paragraph, the criticisms and risks associated with stablecoins can be applied to fiat currencies.
It is absurd that the Fed thinks that cryptocurrencies and stablecoin pose a threat to US financial stability just as US-China tensions or global warming.
Stablecoins are seen by the government as a threat to its sovereignty. The government’s opposition to stablecoins shows that they are not a good idea.