The Russo-Ukrainian war has bred an opportunity for stablecoins to be used as a store of illicit value as well as a store of legitimate value for people interested in maintaining savings through crisis. A recent Chainalysis report highlights this trend, finding that the share of stablecoins’ transaction volume on primarily Russian services grew from 42% in January to 67% in March last year after the invasion and has continued to increase since. However, taking into account illicit uses of stablecoins and blockchain-based currencies, we also note the demand for robust financial systems that can operate during times of geopolitical stress, sanctions and high throughput. These issues have also incentivized governments to speed up their exploration of central bank digital currencies (CBDCs) that can increase efficiency, decrease transaction costs and speed up settlement times. But the continued and future operation of CBDC and stablecoin networks — which will be integral to the financial system of tomorrow — will require the expansion of resilient and secure cloud-based infrastructures, no matter whether the architecture is centralized or based on a distributed ledger template.
Developing a resilient, transparency-focused and cloud-based infrastructure for a U.S. CBDC will only serve to reinforce U.S. competitiveness and the nation’s commitment to responsible innovation.
Since their inception, stablecoins have provided a method of storing value for those who face economic uncertainty and geopolitical instability with their native currency. Although stablecoin traders and holders are active in regions across the globe, 98% of stablecoins are denominated in U.S. dollars. Data from The Block even shows that the supply of fiat-backed, crypto-backed and algorithmic stablecoins totals more than US$97 billion as of January this year, up from US$85 billion from a year ago despite the shrinking of the rest of the cryptocurrency market over the same time. We can understand that the demand for stablecoins is growing, and with that grows momentum following the U.S. dollar. Although this share of stablecoins still falls far short of the total number of U.S. dollars in circulation (US$2.3 trillion, as of the last week in January 2023), it is an important trend to note for financial policymakers.
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