The US debt has reached a climax! Around 29 trillion printed dollars are parked in bonds, notes, and bills resulting in a debt-to-GDP ratio skyrocketing to around 125%. Servicing this debt is becoming too costly to handle especially with yields on 30year bonds almost at 5%. Global interest owning US bonds is eroding due to the lack of trust in the USD and the current geopolitical and economic situations.
To address this crisis, the Genius Act - a U.S. law - was signed by Trump over a month ago. This act endorses the creation of the digital dollar which is a stable coins backed by treasuries. The act is raising tension between centralized digital currencies (CBDCs) and privately issued stablecoins. The idea behind it is: if the traction to buy US treasuries by foreign governments is dwindling down, why not package the debt as a digital stable coin dollar and internationalize it. Crypto market can be hyped when needed or crash altogether, eroding US government debt. Currently at a $3-4 trillion value, crypto will eventually move into treasury backed digital dollar stable coin which can be seen by many as safe deposits. Stable coins backed by government debt renders them unstable and can be devalued especially when blackrock and vanguard are big stackers of crypto. Et Voila!
To many governments, CBDCs are dead. Countries like Canada, EU, and Australia have shelved the idea for the time being with others like the EU, UK, Korea, & Japan venturing towards currency backed stable coins in an attempt to remain relevant. The UAE are going full stream in both realms (CBDCs and stable coins).
Currently, China's ECNY (the digital representation of onshore Huan) is live with 100s of millions of wallets fully integrated with China's banks. Internationally, the offshore CNH for international trade and payments, also backed by the huan seems to be getting tested in Hong Kong. The blockchain of choice is the mbridge what the BIS initiated in collaboration with a few central banks in Asia (Hong Kong, UAE, Thailand..) then backed off of the project for fear of having it replace other the existing reserve currencies and the SWIFT system. Yet the project is not dead and more interest and observers waiting for some updates. In the meantime, many BRICS++ countries stacking on gold! with Shanghai Gold exchange gaining precedence and expanding their footprint internationally with gold vaults in different jurisdictions. It is not clear whether the CNH (offshore digital Huan) will eventually be backed by physical gold, petro, or a basket of real assets. The world is looking for a new store of value and a medium of exchange and to many, the USD - at least in its current form - is no longer an attractive choice.
It is an interesting time in the money market where monetary policy is at the intersection of very complex system that fuse the digital, economic, political, geopolitical, financial, and even social systems.
