For the past couple of weeks, the greenback has experienced a rally that has seen it achieve highs it hadn’t seen in two decades. The dollar’s surge in value came amid efforts by the U.S. Federal Reserve to forestall inflation. Over the past three months, the Fed has raised the benchmark interest rate by 0.75 basis points, and it has signaled that there may be even more interest rate hikes as the risk of inflation increases.
The dollar’s surge has threatened a long-held idea among crypto enthusiasts that digital tokens such as Bitcoin posed a significant threat to the dollar’s global dominance. The current rally in the greenback prices has shown that rather than undermine the dollar, cryptocurrencies seem to be helping the dollar at the expense of weaker fiat currencies.
Thanks to stablecoins, people living in regions of the world with rising inflation and high dollar demand have been able to access digital dollars. Despite the fact that the market for stablecoins makes up less than 1% of the money supply in the United States, their ability to weather volatile cryptocurrency markets has attracted plenty of folks to stablecoins. Chinedu Okpala, founder of U.S. and Nigeria-based Oval Finance, says that while the crypto market is still in its infancy, it is growing bigger by the day.
And with weaker currencies such as the Nigerian naira and the Ghanaian sedi depreciating significantly in recent weeks, Okpala says that dollar-backed cryptos could help the dollar at the expense of some African countries. He notes that if these currencies fail to stabilize, they will continue losing ground to the dollar-backed stablecoins and pose a major threat to Africa’s monetary order.
More and more people are adopting cryptocurrencies, especially in developing countries, and authorities fear that this could have a negative impact on currencies that aren’t as strong as the dollar. Surging demand for the dollar could push even more people to dollar-backed stablecoins and result in further depreciation of weaker currencies.
Dollar-stablecoins are increasing dollar access to people in financially troubled countries such as Argentina, Turkey and Lebanon, with Human Rights Foundation chief strategy officer Alex Gladstein lauding blockchain technology for allowing people who are facing high inflation or authoritarian governments to access digital dollars.
The Atlantic Council’s Geoeconomics Center director Josh Lipsky says that increasing stablecoin adoption could force a sustained reaction from monetary regulators around the world. This could involve replacing the stablecoins of today with an official American central bank digital currency.
As more crypto exchanges are brought on line by industry companies such as Coinbase Global Inc. (NASDAQ: COIN), the popularity of cryptocurrencies is likely to grow as more people around the world gain access to these digital assets.
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