On Tuesday, S&P issued a report about eight of the leading stablecoins, concluding that many of them are deficient. Daniel Wheeler (www.thefintech.lawyer), an entrepreneur and lawyer who advises banks, fintechs, and crypto startups, argues that a pegged U.S. dollar stablecoin would not only increase the money supply safely, but also improve it. It would benefit the U.S. economy by dividing the money supply into two parts. The first part would be the stablecoin used to make transactions faster and cheaper. The other part, U.S. dollars held in bank accounts, would reduce the cost of borrowing USD.
Any stablecoin promising “yield,” “earnings” or “dividends” is likely a security. Transactions with it would trigger capital gains tax. Even if the stablecoin was structured like Tether, with no yield given to holders, it would likely offer little benefit to the U.S. money supply and economy if its portfolio of assets was not solely U.S. dollars in a bank account.
The issue with a stablecoin like Tether is the potential for a “run on the bank” to happen. If the stablecoin invests in anything other than U.S. dollars in a bank account, it cannot guarantee holders that they can redeem it whenever they want and receive its full value.
A true stablecoin, on the other hand, can be sold and redeemed for exactly $1 and will not fluctuate in value. It does not pay yield or appreciate, making it a high velocity money only used for transactions. The U.S. dollar deposits held in a bank account to back the stablecoin would be stable long-term deposits, allowing the bank to lend at lower rates.
The benefits of a true pegged stablecoin are plentiful. It expands the money supply without causing inflation, lowers the cost of borrowing fiat currency, fits easily into existing law, does not harm the banking system, and prevents the government from using currency as a weapon of surveillance and control.
