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The initial supervised stablecoin linked to the international variant of the Chinese yuan (CNH) intended for foreign exchange markets, and a South Korean won (KRW) stablecoin introduced this week as the global stablecoin competition intensifies.
Financial technology firm AnchorX launched its AxCNH yuan-pegged stablecoin on Wednesday at the Belt and Road Summit in Hong Kong, according to Reuters, following a regulatory shift in China welcoming stablecoins for global markets.
This stablecoin aims to streamline cross-border transactions with nations involved in the Belt and Road initiative, an infrastructure endeavor constructing physical roads connecting China to the Middle East and Europe, while establishing maritime trade pathways with other areas.
BDACS, a digital asset infrastructure firm, also revealed the introduction of KRW1, a Korean won-pegged stablecoin, on Thursday.
Both KRW1 and AxCHN are overcollateralized stablecoins, indicating they are entirely backed 1:1 by fiat currency reserves or government debt securities held by a custodian.
Stablecoins now represent a domain of geo-strategic significance, as sovereign nations rush to place their fiat currencies on digital platforms to elevate demand for their currencies globally, aiming to mitigate inflationary pressures stemming from currency issuance.
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The relationship between stablecoins, fiat currencies, inflation, and government debt
The traditional financial system is sluggish, necessitates substantial infrastructure that may be lacking in developing regions, and includes currency controls in specific jurisdictions that restrict demand for fiat.
Transferring fiat currencies onto blockchain systems, which function 24/7 and offer nearly instantaneous, cross-border settlement, boosts international demand by rendering fiat more available to the average individual, potentially offsetting price hikes induced by currency inflation.
Currency inflation leads to price surges because the demand for the currency does not match the increased supply generated through money creation.
Overcollateralized stablecoin issuers like Tether and Circle contribute to addressing this issue by acquiring government debt securities and cash assets to support their digital fiat tokens, subsequently making the tokens available to anyone possessing a mobile device and a crypto wallet.
Essentially, these organizations provide a means for most individuals worldwide to become indirect purchasers of bonds, enhancing the market for those assets, reducing yields on state-issued debt, and alleviating the government’s debt-service obligations.
Tether has emerged as one of the largest holders of US Treasury bills globally, outpacing developed nations like Canada, Norway, and Germany.
Anton Kobyakov, an advisor to Russian President Vladimir Putin, recently remarked that the US government is striving to alleviate its $37 trillion debt with stablecoins and gold to enhance confidence in the waning US dollar.
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