Stablecoins could act as a mechanism to mitigate dollar strength, experts suggest

In an era where capital movement has become easier than ever, the phenomenon of global funds concentrating in the United States is accelerating. While the hegemony of the dollar is being solidified, an analysis has emerged suggesting that "dollar stablecoins," which have recently become a hot topic, could actually serve as a mechanism to decrease the value of the dollar.

In a discussion video released on the 24th by The Man Who Explains the Economy (Kim Kwang-seok TV), three experts—Jeong Gu-tae, Kim Dong-hwan, and Kim Gwang-seok—held an in-depth dialogue regarding the impact that the spread of dollar stablecoins will have on exchange rates and monetary hegemony. The core of the discussion was that the "versatility" of the dollar and its "value (strength/weakness)" must be viewed separately.

Preference for US market listings and capital outflow... structural factors for won weakness

The panelists addressed how the preference of representative South Korean companies for the US market affects exchange rates, citing examples such as Samsung Electronics and SK hynix. Kim Dong-hwan explained that while Samsung Electronics faces difficulties issuing American Depositary Receipts (ADRs) due to governance issues, SK hynix is already enjoying the advantages of the US market by issuing ADRs.

"SK hynix shares traded in the US market are traded at much higher prices because they benefit from US financial conditions, even though they are the same company," Kim analyzed. "The more successful a company is, the more it is bound to prefer listing in the larger US market, and in this process, there is a high possibility that the exchange rate gap will widen." He argued that the structural flow of capital being sucked into the US in search of higher returns and stability puts pressure on the weakness of the won.

This ease of capital movement also creates differences in currency defense strategies between nations. The video mentioned the case of China. The analysis suggests that a major purpose behind China blocking crypto (virtual assets) early on was to prevent assets from flowing out of the country. The panelists explained that even as China considers introducing digital currencies while developing its AI industry, the reason it does not link these to assets like Bitcoin is the clear possibility that capital could leak out if they were connected.

The paradox of stablecoins: a potential tool to mitigate dollar strength

The most interesting point of contention was the relationship between dollar stablecoins and exchange rates. Kim Dong-hwan presented a different view from the common perception that the spread of dollar stablecoins would increase demand for the dollar and thus cause dollar strength. He emphasized that as much as demand for the dollar increases, the supply of dollars also increases equally according to the issuance principles of stablecoins.

"Because stablecoins match supply and demand on a one-to-one basis, they are like two sides of the same coin where the supply increases explosively as much as the demand for the dollar explodes," Kim explained. In particular, he pointed out that stablecoins serve as a major purchaser of US short-term Treasury bonds, thereby providing liquidity.

He continued, "If it were not for stablecoins, the strengthening of the dollar might have been even more intense," and predicted, "Rather, stablecoins can act as a device that relatively mitigates (induces weakness in) the strength of the dollar." This analysis is said to align with the policy stance of former President Trump, who aims for a weak dollar to attract manufacturing bases to the US. The logic is that in a situation where Trump pursues attracting domestic manufacturing facilities alongside tariff wars, the supply of liquidity through dollar stablecoins could naturally have the effect of lowering the value of the dollar.

The 'Strong Dollar Un-normal' era: where is the exchange rate heading?

Professor Kim Gwang-seok agreed with the concept of "Strong Dollar Un-normal"—a phenomenon where the value of the dollar is maintained at a high level—but provided specific figures regarding the equilibrium point of the exchange rate. "The historical average of the KRW-USD exchange rate is around 1,150 won, but the current level of 1,300 to 1,350 won is establishing itself as the new equilibrium point," Kim diagnosed.

Forecasting the exchange rate, he added, "I expect it to descend from a peak of around 1,550 won to the low 1,300 won range." However, he explained that since the exchange rate is a comparison of the relative value between two currencies, it should be noted that even if the supply of dollars is high, a strengthening of the dollar can still occur if the value of non-US countries (local currencies) falls even more rapidly.

In relation to this, the situation in South Korea was cited, noting that tourism demand is increasing, such as Seoul being selected as the number one most desirable city to visit in the world. However, an analysis was presented that the current number of tourists visiting South Korea remains at half the level of Japan; if tourism demand reverses to the level of Japan in the future, this could lead to an increase in demand for the won, acting as a local factor for dollar weakness.

In conclusion, the panelists continued their dialogue by reaching a consensus that the strengthening of the dollar's versatility (its status as a reserve currency) and the fluctuation of the dollar's value (the exchange rate) should be understood on separate levels.

Source: original video (YouTube)