When the 1997 Asian financial crisis struck, it significantly impacted five Southeast Asian (SEA) countries, namely Thailand, the Philippines, Indonesia, Malaysia, and Singapore. In fact, the crisis is thought to have originated in Thailand when the government chose to unpeg the Thai Baht (THB) from the US Dollar (USD), setting off a wave of capital flight from the country. This triggered a chain reaction across Southeast Asia that rippled out to the entire continent, eventually culminating in the Asian financial crisis.
It has been suggested that one of the primary causes of the Asian financial crisis was the export-oriented nature of economies in East Asia as well as Southeast Asia. In 2019, the situation is little different. The risks that precipitated the Asian financial crisis continue to loom over SEA economies, which continue to rely on exports and maintain floating currencies. As countries become increasingly exposed to the effects of trade globalization, stablecoins have emerged as a possible way to cushion the impact of protectionism and malicious monetary policies.
In essence, stablecoins aim to provide the best of both worlds — harnessing the processing speeds of cryptocurrencies while offering the stability of fiat currencies. Fiat-collateralized stablecoins are pegged to a national currency, while commodity-backed stablecoins are pegged to commodities such as gold, silver, etc.
Given the genesis of the Asian financial crisis, the importance of fiat collateralization is self-evident. However, safe haven commodities can serve a similar purpose. Malaysian Prime Minister Dr. Mahathir Mohamad in June this year proposed the development of a pan-Asian gold-backed currency to facilitate bilateral trade among Asian countries, circumventing the economic issues associated with currency devaluation.
In order for SEA countries to advance their economies, it is imperative that they acknowledge the cost of expedient monetary policy. Prior to 1933, the USD was based on the gold standard, requiring any increase of the amount in circulation to be met by a corresponding increase in the amount of physical gold held by the US Federal Reserve. However, at the height of the Great Depression in 1933, then-US President Franklin D. Roosevelt decided to abandon the gold standard to allow the government to pump money into the economy and lower national interest rates.
Although abandoning the gold standard enabled the US economy to recover from the Great Depression, it also led the superpower to spiral into the debt-ridden country that it is today. With a total federal debt of US$22.5 trillion, the main reason why the US isn’t bankrupt is that it’s just too big to fail. The reasoning goes that the collapse of the US economy, which has been the world’s largest since 1871, would most likely lead to a meltdown of the global economy, with repercussions far worse than that of the Great Depression.
As SEA countries forge ahead on their path of rapid economic progress, employing stablecoins as payment instruments and their inclusion in fiscal policy considerations could allow them to serve as a fail-safe mechanism, avoiding the pitfalls of spiraling public debt.
Putting the Asian financial crisis in its rearview, SEA countries have transformed into the new frontier for innovation and economic growth, especially as the US-China trade war continues to reroute supply chains. However, as long as Southeast Asian nations remain exposed to geopolitical instability and malicious monetary policies, the appeal of stablecoins persists as a potential buffer for regional economic stability.
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