Currency Stability Assumption

The steady state hypothesis is an economic theory that argues a given money supply can maintain a stable value or the purchasing power of any given currency or money. The idea comes from the fact that money supply and demand tend to balance out over time, so that any excess money supply will eventually lead to an increase in the demand for goods and services. As the demand for goods and services increases, so too does the demand for currency, which in turn leads to an increase in the money supply. This dynamic balance keeps prices stable, as more money becomes available to purchase goods and services, which in turn allows for greater economic growth.

The steady state hypothesis was developed by John Maynard Keynes, one of the most influential economists of the 20th century. According to the theory, a government has two tools to achieve a steady rate of economic growth. The first is monetary policy, which involves manipulating the money supply and interest rates. The second is fiscal policy, which refers to government spending and taxation. It is advocated that governments use both monetary and fiscal policies together to accomplish a steady rate of growth over time.

The steady state hypothesis has been criticized for its assumption that demand for money is always stable and cannot be influenced or reduced by other economic conditions. Although the idea is based on the idea that the money supply and demand tend to remain in balance, this does not necessarily hold true in all cases. For instance, during times of inflation or deflation, the money supply can cause the demand for money to increase or decrease. During these times, governments often use other tools to promote economic stability, such as running budget deficits, raising taxes, or changing interest rates.

Additionally, the steady state hypothesis has been criticized for being too simplistic, as it is not able to explain certain aspects of the economy such as changes in unemployment, investment, or GDP. This is because it assumes that the factors affecting demand and supply are only monetary. However, other factors such as taxation, government interventions, economic conditions, and natural resources could potentially have an impact on economic activity.

Despite criticism of the steady state hypothesis, many economists still find value in it. It provides a framework for understanding how money and demand move in the economy. Additionally, it provides a basis for understanding the importance of targeted monetary and fiscal policies in maintaining economic stability. Overall, the steady state hypothesis is one tool that economists use to analyze and understand the complex dynamics of modern economies.

The stable-coin hypothesis supposes that issuing a monetary asset pegged to a stable unit of account, such as a fiat currency, creates a store of value that is uncorrelated with other financial assets and could be denominated in varying units from other markets. The idea is that by providing a stable base unit of exchange, this asset serves as an effective bridge to both fiat currencies and cryptocurrencies, creating a global market for frictionless payments and currency exchange that could benefit both businesses and individuals.

The main idea of the hypothesis is that, similar to other cryptocurrencies, stable coins are liquid assets that are open, distributed and secure. It is suggested that they could be used to send payments more securely and with lower transaction costs than other payment networks, including major credit card networks and bank transfers. By reducing the costs associated with traditional payment networks, stable coins could also make it easier for people to access credit and investment capital.

The hypothesis also proposes that access to a stable currency is a key component for enabling financial inclusion in emerging markets. The use of a stable coin in countries with volatile currencies could offer a more stable payment option for those who lack access to traditional financial services and uplift millions without traditional banking services. This could be especially beneficial to the estimated 1.7 billion unbanked individuals who lack access to a credit card or bank account.

In conclusion, the stable-coin hypothesis proposes that through the use of a stable coin, individuals and businesses could benefit from a range of advantages, such as improved payment efficiency and access to financial services. The potential of stable coins to help bridge the gap between fiat and cryptocurrencies could open up a world of opportunities for businesses and individuals. It is yet to be seen whether the hypothesis is economically viable, but it could be an intriguing prospect.