Reference News Network, July 14 report - According to Australia's The Conversation website on July 9, on June 17, the U.S. Senate passed the "Guidance and Establishing a National Innovation Act for American Stablecoins," which is seen as a major victory for the cryptocurrency industry. The bill aims to regulate a type of cryptocurrency known as "stablecoins." However, upon closer examination of the bill, it could easily trigger the next global economic crisis.

To understand this bill, we can look back at the early development of cryptocurrencies.

They were initially created as decentralized currencies, with their supply - and value - determined not by people in suits in Washington D.C. or Frankfurt, but by complex global computer systems.

The most famous early cryptocurrency was Bitcoin, whose idea was that it could be similar to gold. People could provide (almost) continuous supply by mining Bitcoin, thereby returning to the gold standard era, where the value of any currency was determined by the value of gold rather than the national economy.

However, the most moderate definition of cryptocurrency today is "a casino." In fact, people invest in cryptocurrencies precisely because they are not as stable and reliable as gold, as their volatile value can bring significant investment returns. Since the factors determining their price are often unclear, investing in cryptocurrencies is essentially like rolling dice. The probability of making money in cryptocurrency trading is often like playing roulette.

The cryptocurrency industry knows that this high volatility (and unpredictability) is difficult to attract more cautious investors. To create a stable atmosphere, major companies began to create "stablecoins": cryptocurrencies tied to another currency.

With the U.S. Senate passing this bill, large companies such as Amazon and Walmart have started planning to issue their own stablecoins for customer use. But the concept of a company having its own currency raises some serious questions. Can I use an Amazon token to pay at Walmart? And vice versa? If I use an Amazon token to pay at Walmart, will their values be the same? What if every major company in the United States decides to create its own tokens, which token should be used for each transaction?

Since this bill will regulate stablecoins, one might think all stablecoins are equally safe. However, this is not guaranteed, and there are many questions about how companies will use their own stablecoins for their own benefit.

The world has experienced multiple similar currency crises, usually caused by a country rather than a company issuing pegged currencies. Argentina is a typical example. From 1991 to 2002, the Argentine central bank promised to exchange 1 peso for 1 dollar, which artificially distorted trade between Argentina and non-dollar economies. An economic crisis followed and worsened after the peg was finally removed.

Now imagine that a large company in the United States issues 100 billion stablecoins pegged to the dollar. The company operates well, with sufficient assets (including U.S. Treasury bills or bonds) to guarantee the value of the stablecoins. It keeps issuing more stablecoins, but then its financial situation takes a sharp turn for the worse.

This will trigger a chain reaction. Investors will eventually realize that the number of stablecoins issued by the company exceeds the value of the U.S. Treasury bonds it claims to hold. Then, they will start redeeming the stablecoins, prompting the company to sell its held U.S. Treasury bonds to calm the anxious investors (which may not be successful).

The impact will soon begin to spread outward. Selling U.S. bonds will cause bond prices to fall, leading to a surge in U.S. interest rates. A sudden, unexpected sharp increase in U.S. interest rates can easily trigger a global financial crisis, as banks and governments around the world will suddenly face solvency crises.

Evidently, this situation is not inevitable. According to the new legislation, companies issuing stablecoins will be regulated, and regulatory authorities will ensure they have enough reserves to fulfill their promises when investors panic.

However, U.S. financial regulators are not absolutely reliable. Just a few years ago, they failed to notice that Silicon Valley Bank had too much assets exposed to rising interest rates, a negligence that led to the bank's collapse in 2023.

Therefore, it is not hard to imagine that multiple companies could irresponsibly issue excessive stablecoins. If this happens, the consequences could be very terrifying, causing serious impacts not only on the United States, but also on the entire global economy. (Translated by Wang Diqing)

Original: https://www.toutiao.com/article/7526852195203973659/

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