🤑Dollarization.

Stablecoins (USDT, USDC) are digital dollars. They are easy to buy and store: you need a phone and the internet. Because of this, people in many countries have found it easier to quickly move from their local currency to the dollar, especially when local money is depreciating.

What is happening in reality? A person sells local currency and buys stablecoin. Massively, it looks like this: local currency is sold more often, dollars are bought more often, so the exchange rate of the local currency usually weakens. At the same time, some money is leaving banks for crypto wallets because people prefer to keep savings in stablecoins rather than in deposits. Banks are finding it harder - they have fewer deposits, which means worse liquidity and fewer opportunities to lend to the economy.

When this becomes noticeable at the national level, the central bank must respond:
- raise interest rates to keep people in the local currency,
- impose restrictions on the purchase of currency and stablecoins, - support banks with liquidity through loans and refinancing to prevent banking problems.
- print money to close budget gaps = inflation rises = weak currency makes imports more expensive = prices within the country skyrocket.

😈There is also a global aspect that many overlook. Stablecoin issuers are required to maintain reserves to keep the token around 1 dollar. These reserves are usually placed in reliable dollar-denominated instruments - short-term U.S. Treasury bills (T-bills) and money market funds. Therefore, a simple connection emerges: the more stablecoins are issued, the more money flows into U.S. government bonds.

👉From this, an important conclusion follows - stablecoins help finance and service U.S. government debt, creating additional demand for treasury securities, and high demand usually means lower borrowing rates. This means the U.S. can borrow a bit cheaper, and interest expenses can be lower than they would be without this demand.

In short: stablecoins have made the dollar maximally accessible to the whole world. For people, it is a convenient protection for savings. For countries with weak currencies - additional pressure on the exchange rate and the banking system, causing authorities to tighten controls or be forced to support the financial sector. At a global level, the growth of stablecoins enhances the attraction of capital to dollar assets and adds demand for short-term U.S. government debt.

#Fundamentals