Central bank digital currencies (CBDC) get a lot of attention. Many feel these will just swoop in and take over.
There appears to be a lot of competition brewing. Obviously, we have private stablecoins issued by different institutions. The most recent to garner publicity was PayPal with the PYUSD token.
This has caused great debate between those advocating for private coins as compare to the public ones tied to the central bank or government.
We do have another potential entrant into the race:** state issued stablecoins**.
Here is another public coin but not directly tied to the federal government.
In this article we will discuss what the state of Wyoming is doing and how this could affect things.
The Wyoming Stable Token Act
In February 2022, the state passed the The Wyoming Stable Token Act. This allows for the pursuit of a state-issued digital asset. It covered virtual currency, specifically the creation of a stablecoin.
The bill defines the Wyoming stable token as a virtual currency representative of and redeemable for one U.S. dollar held in trust by the state of Wyoming. Basically, the state would tokenize the federal currency on a 1:1 ratio with deposits.
It was vetoed by the governor in spite of bipartisan support. Another bill was passed a year later, this time the governor being more open but still holding reservations.
Why would a state need its own stablecoin?
According to one lawmaker:
“Wyoming needs to be able to transact in a digital currency — to accept payments, to make payments, and to do so without risk. The Wyoming stable token is the solution to that challenge.”
Hence, we potentially could have another entrant in the race.
Conflict With The Feds
The state issuing currency would harken the United States back to a bygone era. That said, it brings up a lot of questions.
Naturally, this could be seen in conflict if the Federal Reserve brings out a CBDC. Who would be the monetary authority in that situation? Suddenly, it would be challenge by state representation.
Or would it?
This could be viewed as the state issuing a financial asset as opposed to a separate currency. The stablecoin would be tied to the U.S. dollar.
In this regard, it would actually increase the impact of the Fed's monetary policy since there would effectively be more dollar units in circulation.
Nevertheless, when it comes to politics and power, things tend to get cloudy.
What kind of fights could we see resulting from this? Only time will tell on that one but it is safe to say many states will be looking in this arena.
A Stablecoin Future
Regardless of how this particular situation works out, we cannot overlook the fact that our future is one of stablecoins. This is the medium of exchange that will take place. Each account we have will ultimately be using stablecoins of some sort.
In fact, it is likely that most financial institutions issue their own stablecoin in a manner similar to PayPal. The old saying "when in Rome...". Whatever platform one is on, that is the stablecoin that will be used.
Here is where we see the unit of account being the key attribute more than the asset itself. The latter is going to vary based upon the network one is on.
For this reason, it is no surprise that states in the U.S. will get involved. It is also likely that local governments in other countries consider similar measures. Many provinces will eventually roll out their own tokens.
Decentralization Of Money
This is nothing new.
Most seem unaware of the fact that money was always decentralized. This seems odd considering the fact that governments (or kingdoms) had mints, pounding out currency. However, what is overlooked is ghost money that was created by merchants throughout history.
Money was designed for business. It is a tool to facilitate trade. These entities could always generate money simply by issuing credit. This is what the commercial banks do.
What we are seeing is simply the digital version of this. A token represents something. That is the base attribute we should keep in mind. Therefore, when utilizing a token, we are simply capturing what it represents in a form that can be transferred.
Exchanges and other technological advancements with things such as wallets will allow us to utilize dozens of different stablecoins. What they represent and are backed by will not be of consequence to most. Instead, it is the unit of account that is important. Have a PYUSD in your wallet and need to make a payment of taxes in Wyoming, then swap that token for the WYUSD to facilitate the transaction.
Like other coins and tokens, the state's stablecoin will have its limitation in acceptance. For example, my gardening or basket weaving clubs might not accept the WYUSD. In fact, PYUSD could fall into the same category. Instead, there will be a token it accepts, perhaps one it created itself. If I want to engage in transactions within that network, I have to use the proper token.
A Eurodollar Future
When dealing with ledger based money, an entirely new world opens up.
These concepts are nothing new. In fact, they were tested for the last 70+ years. Ever since Midland Bank started to make loans in a currency outside the sterling, a new game was created. This is actually what overtook the funding of global trade.
When one institution acquires Foreign Exchange Derivatives by posting 3 month SOFR futures, there was a monetary exchange without any currency. This transaction, which could be into hundreds of millions of dollars, is likely priced in USD yet there is no currency involved. The unit of account is present yet the assets are something different.
It is no different with cryptocurrency. Blockchain are a design in ledger control yet it provides the same service. The ledger is hopefully maintained by a number of unrelated entities. This allows for the processing of transactions utilizing whatever currency is tied to the network. What these coins or tokens pertain to can vary.
Ultimately, the goal is to swap one item for another. With digital assets, as the Eurodollar System proved, this can occur by trading the two items directly. There is no need to go from the asset to currency and then do it again.
In fact, we can tokenize barter by having a token that represents pigs as well as one that is for chickens. To trade the pig for chickens, it is becomes clear. Of course, what if one party doesn't have the pig token but, rather, one for cows. A swap out of that for what is needed can occur.
Basically, all of this is digitized barter. A standard unit of account is required. Outside of that, the tokens can represent whatever one can conjure up. Those who have a need will engage in trade simply because upon what it all represents.
Stablecoins will be no different.
When in Rome...