The dollar is the global reserve currency, and has been ever since the Bretton-Woods conference in 1944.
Oil, gold and other commodities are commonly priced in dollars. Central banks hold dollars. Monetary policy in the US heavily influences nations around the world.
This is part of the reason for the US dollar’s immense strength last year. As the world tumbled into an inflationary crisis and uncertainty reigned supreme, markets flocked to the safest currency in the world: the US dollar, which strengthened against almost every major currency. While it has weakened since as inflation has softened and sentiment has picked up somewhat, it still demonstrates the privilege that the greenback commands.
The world of cryptocurrency is no different when it comes to dollar dominance. In fact, it is especially dollar-dominated. Looking at stablecoins sums this up, with dollar-backed currencies constituting over 99% of the market share.
However, there do exist non-dollar stablecoins. To get an insight into one, and why the dollar has been particularly dominant within the area of crypto, we interviewed Mike Crosbie, acting-CEO of poundtoken, the British stablecoin known as GBPT.
Invezz (IZ): Why has the pickup of non-USD stablecoins been so slow around the globe?
Mike Crosbie (MC): The primary factor is the dominant position of USD in global finance which naturally translated into the digital currency market. However, as the US regulatory environment becomes increasingly unfriendly towards digital assets, we believe that we’ll continue to see an increasing uptake of non-dollar stablecoins.
These stablecoins can provide unique advantages in regional economies and trading pairs. At poundtoken, we believe that those who can demonstrate strong transparency and compliance practices will be well placed to grow their international user base.
IZ: There are currently almost no GBP stablecoin pairs on major exchanges. Why would somebody hold a GBP stablecoin over conventional fiat pounds?
MC: Holding a GBP stablecoin over conventional fiat pounds offers the same major advantages as with stablecoin technology in general such as low-cost international transactions and access to the overarching digital asset ecosystem.
One specific benefit of GBP stablecoins for crypto users in the UK was recently highlighted by our friends over at tax advisory firm Andersen. They found that many UK investors aren’t aware that trading from one stablecoin or cryptocurrency to another creates a taxable event, even if no funds are withdrawn. Despite this, the use of US dollar stablecoins remains dominant amongst UK crypto users, leading to more complicated tax returns and foreign exchange conversions occurring at a high rate.
GBP stablecoins would allow these people to interact with exchanges without having to worry about potential liabilities arising from foreign exchange movements.
IZ: How palatable is the regulatory environment for stablecoins, and crypto as a whole, in the UK?
MC: The UK has recently become more proactive in establishing a regulatory environment that is conducive for the growth of British crypto. Prime Minister Rishi Sunak has even previously stated his wish for the UK to become a “global hub” for cryptoassets and it seems that we’re beginning to see progress towards this from His Majesty’s Treasury.
Although there are distinct elements still missing from the country’s regulatory framework, we remain optimistic for the future.
IZ: Sometimes stablecoin advocates point towards the dollar-peg offering a greater store of value for citizens of countries with rapidly-devaluating currencies, such as Argentinians. For a GBP stablecoin, this argument is not as strong given the pound’s relative strength against the dollar, and the fact the dollar is the global reserve currency. Is there any reason for non-crypto users to hold this stablecoin?
MC: Countries with rapidly devaluing currencies should see a GBP stablecoin as holding similar protection from inflation as USD stablecoins. Although it’s true that the dollar remains the global reserve currency, other contextual benefits are plenty.
For instance, it can facilitate easier transactions within the UK and with UK businesses, which is especially useful for those countries who see a high number of remittances coming from UK shores such as Nigeria, Kenya, Jamaica, and many many more.
IZ: The Bank of England is looking into the possibility of a central bank digital currency (CBDC). Do you fear that this competition could impact usage of GBPT?
MC: Rather than viewing this as competition, we see it as validation of the importance and potential of digital currencies. Stablecoins and CBDCs can coexist and serve different purposes within a diverse financial ecosystem. It’s a testament to the evolution of our financial infrastructure and we’re excited to be a part of it.