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Will the Dominance of Tether or USDT Cause USD Exchange Rate to Fall?
359 sats \ 1 comment \ @spiderman 8h econ
So, I am not an economist, but bear with me.
The money multiplier is defined as the money in circulation (being actively used as medium of exchange) vs the base money quantity. In a floating exchange rate regime, is it the money in circulation that determines the supply (as in, how abundant a specific currency is)?
So Tether stable coins (if used extensively for buying/selling goods) seem to add to the USD M2, especially if they get widespread acceptance so that you can buy a house or car around with them. Does it mean, by virtue of those stablecoins, the USD will have a much larger multiplier than, let's say, GBP?
Thus, will the effect be to reduce the dollar index on the margin?
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0 sats \ 0 replies \ @freetx 2h
Well its a good question to ask, but remember that new laws governing stablecoins (ie. GENIUS act) mandates a 1:1 backing with US Treasuries.
So the USDT that are coming into creation are ultimately flowing into treasury purchases. In theory this isn't representing a new creation of money, but instead its just swapping hands something like: Existing USD -> Tether -> US Gov.
The interest portion of the US Treasuries created "in theory" has a deflationary effect.
Really this entire question revolves around Full-Reserve vs Fractional Reserve banking.....we have been under a regime of Frac Reserve for the past 100 or so years. Clearly Frac Reserve is inflationary (ie. money multiplier effect from relatively low reserve ratios). In "theory" Full Reserve banking should not be inflationary.
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