Paul and Luke discuss what they are, how they may affect the ways in which we pay for goods and services, how they are being regulated and what it might mean economically.

In the spotlight are public sector debt dynamics, the status of the US dollar, how central banks set monetary policy and whether stablecoins pose risks to financial stability.

Some highlights:

• Digital dollars, without the volatility. Stablecoins are designed to maintain a fixed value – usually tied to the US dollar – offering the benefits of crypto without the price swings.
  
  
• Regulations are here. The US recently passed the Genius Act, setting strict rules for stablecoin issuers. Coins must be backed by ultra-safe assets, like short-term Treasury bills, and they can’t pay interest – in an effort to prevent disruption to the banking system.
  
  
• A new buyer for US debt? Issuers are already major purchasers of T-bills. If the market grows to US$2 trillion over the next five years, it could absorb all net issuance of short-term US government debt. This has the potential to reconfigure fiscal dynamics.
  
  
• Dollar dominance, reimagined. Stablecoins could accelerate dollarisation in emerging markets, giving people access to digital dollars without needing a US bank account. That’s a win for US influence, but it also raises questions about how sanctions and monetary policy will work in a new blockchain-based world.
  
  
• Financial stability risks. Despite the name, stablecoins aren’t immune to instability. If confidence in the currency peg breaks, it could trigger selloffs in the crypto ecosystem and even ripple into the broader financial system via the Treasury market.

Listen to the latest episode of our Macro Bytes podcast for the full discussion.