Stablecoin promotion by the US could have global consequences

This US policy goes against its cheap-dollar preference and may present monetary authorities elsewhere with new challenges

- NIRANJAN RAJADHYAKSHA

Donald Trump has imposed stiff tariffs on Indian goods entering the US market. This part of his disruptive mercantilist agenda to bring US trade with the rest of the world back into balance has quite naturally dominated news headlines over the past few months. The US is our biggest trading partner and economists have been sweating their spreadsheets to give us some initial estimates of how these higher tariffs will affect the Indian economy.

Less attention is being paid to another ongoing shift in US policy. Trump wants to harness the growing popularity of digital finance to strengthen US economic power. His administration seeks to build a regulatory framework around stablecoins, or cryptocurrencies whose value is backed by fiat currencies such as the dollar. Trump has already signed into law the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act).

A stablecoin maintains a fixed rate of exchange with an underlying asset, unlike cryptocurrencies such as Bitcoin or Ethereum, whose price fluctuates every day, sometimes wildly. The reason for their price instability is that the supply of these cryptocurrencies is determined by a rigid algorithm, so prices bounce around depending on demand conditions.