The fragile hopes of Stablecoin
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What is a stablecoin and how does it differ from other cryptocurrencies?
This week stable coin, what is it and why is it different to other types of crypto? And why is the US administration such a fan? They hope it is part of the answer to their mushrooming government debt. Does that mean other governments should be looking into it too? And how big is the opportunity for stablecoin operators as well? We look at all of that in the next half hour here on the weekend edition. The morning call from NAB with Phil Dobby. The weekend edition. Well, stablecoin is uh a bit like Bitcoin, except it's not. I mean it it doesn't find its own market price. It's pegged to a currency, normally at the moment, the US dollar. It's backed one-to-one by that currency, or safe assets like government bonds, and it has a controlling entity.
It's not the decentralized Wild West that we see with Bitcoin. So that makes it, I guess, more suitable for transaction. actions, whereas Bitcoin and other cryptos probably less so. They're more of an investment vehicle than anything else. In fact, as I understand it, people trading on crypto markets tend to use stablecoin as the currency that they trade in and out of. But can it be used for a broader range of transactions given that it is supposedly such an efficient way of money changing hands? And seeing as it's usually backed by government bonds, what's the role of the Treasury in all of this and central banks? Well Simon French is the managing director of Panmu Libram in London. He writes a a regular column for the Times, actually has done for the last eight years or so, almost
quite as long as this uh this podcast has been going for. And he wrote recently about stablecoins, saying that whilst America is embracing it, the UK risks missing out, simply because the Bank of England governor isn't a fan of it. And I guess this applies to many other countries as well. So Simon, the US has embraced it because they've uh they've got the Genius Act, which is another one of Trump's understated pieces of legislation. I think it's now law, isn't it? So th the US seems to be taking this rather more seriously than the UK or Australia or anywhere with the possible exception of Europe. But Scott Besson, the US Treasury Secretary seems to see this, seems to see stablecoin as a way of uh funding more treasury debt that actually, you know, if if you make it easier to buy into that debt, people might not notice there's actually so much more of it.
Is that his grand plan? Is that the genius behind this act?
It is. Well first of all, thank you for the invitation to to chat about the subject. Um I think he You'll never get
off this podcast by the way. Now you're on.
That's not a bad thing. So um look, I think you are right in terms of um Scott Bessant, the US Treasury Secretary has like a an awful lot of market participants, it has to be said, in Scott comes with a a rich heritage in fixed income markets, um in fact investment markets over many decades, has recognized that the structure of demand for government debt is is shifting and shifting quite quickly. Indeed we're making this recording uh in a morning at least UK time when um bond m bond yields again at the long end of the curve are selling off quite aggressively, causing worries about the funding costs for governments, um, you know, the the the the sort of fiscal headroom that they they all have. And uh I think the where the US has, uh as is pretty typical actually, rather jumped ahead here, is acknowledged that if short end debt is rather easy
easier to sell um with a long end debt and those can be the assets or part of the asset base the back stable coins promoting of that form of payment that takes all the or quite a lot of the elements of uh crypto assets in terms of distributed ledger technology, the efficiency of payments, and applies it to something that is I think you use the phrase Wild West, has a little l less um uh speculation about it and has some assets that investors are familiar as a backing asset class. That provides optionality in terms of the liquidity the governments can tap into.
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Chapters
4 chapters
1
What is a stablecoin and how does it differ from other cryptocurrencies?
0:01–8:54
2
Why did the US enact the Genius Act and what does it require of stablecoin issuers?
8:54–10:27
3
How could the Genius Act boost demand for US Treasury securities and lower borrowing costs?
10:27–26:10
4
What are the international advantages and risks of stablecoins being backed by US assets?
26:10–31:31