Chennai: With the US rolling out the Genius Act and more than 140 companies including Visa, MasterCard, Google, Samsung and IBM backing the Open USD initiative, privately issued digital dollars are moving from the fringes of crypto to the heart of the global payment system. As the stablecoins can be pegged to the US treasury bills, any stress in the treasury bills and larger adoption of Open USD can lead the globe to another financial slowdown similar to the subprime crisis of 2008, says Vivek Iyer, partner and financial risk advisory services leader, Grant Thornton Bharat.
Stablecoins are digital currencies and Open USD is a private dollar-pegged stablecoin – a project in the US which has the backing of 140 companies like Visa, Mastercard, Blackrock, IBM, Samsung, Google, and Coinbase. It is meant for transactions instead of currencies and the Genius Act allows these stablecoins to be backed by short-term US treasury bills.
Under the OpenUSD initiative, participating companies issue stablecoins for US dollar, and that can be used as a medium of exchange across merchants accepting them. Initially, the focus will be on driving adoption rather than profits, with transaction and usage fees expected to emerge only after the ecosystem reaches scale.
However, Iyer cautions that stablecoins could weaken national monetary sovereignty of countries by enabling transactions outside conventional financial systems. “Countries impose current and capital account restrictions in line with their national interests. Stablecoins offer an opportunity to transact without many of these limitations,” he said.
He is also critical of the Genius Act allowing stablecoins to be backed by short-term US Treasury bills. According to him, such a structure could encourage governments to rely more on short-term borrowing, leading to fiscal indiscipline and increasing financial stability risks over time.
The Reserve Bank of India has already warned that private stablecoins could “threaten domestic monetary sovereignty” and financial stability”. Privately issued digital currencies operating outside the banking ecosystem could reduce the RBI’s ability to control money supply through interest rates, liquidity measures and open market operations, thereby weakening monetary policy transmission and inflation management, he said.
He also pointed to money laundering and terrorist financing risks arising from payment networks operating beyond the mainstream financial system.
On the possibility of OpenUSD becoming a global payment network, Iyer remains sceptical. While adoption could gather pace in the US, he believes global expansion would require regulatory cooperation among governments, which is currently lacking. He also argues that the US no longer enjoys the diplomatic influence needed to push such financial innovations worldwide. However, the backing of large MNCs can make its adoption faster and it is also likely that they can exist in the financial system like cryptos without the recognition of RBI.
The biggest concern, according to Iyer, is systemic risk. Any geopolitical event or loss of confidence that affects the value of US Treasury securities would also impact stablecoins backed by them. “The greater the adoption of stablecoins backed by Treasury securities, the greater the impact of any change in the value of the underlying assets. If they become widely used across the world, the extent of damage caused by such volatility could be similar to the contagion witnessed during the 2008 subprime crisis,” he said.
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