A Detailed Dive Into Stablecoins #012

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Hello friends,

I feel honored to come before you all today again to continue on our discussion as usual.

I trust you are all doing perfectly fine and are enjoying your activities in the community.

Today, we shall resume our discussion on stablecoins in the cryptospace.

And in our last discussion, we learnt about some advantages of fiat currency which is one of the mechanism of a fiat collateralized stablecoin.

Today, we shall continue our discussion, please stay tuned.

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ADVANTAGES OF FIAT CURRENCY

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There are several advantages of fiat currency other than the ones that were discussed the last time, and some of them are

• RESERVE CURRENCY:

One advantage of fiat currency is that it can be used as a form of currency reserve.

Due to its inherent stability, widespread acceptance and the mightiness of the economy of the country that issues it, fiat currency can serve as a currency reserve.

A reserve currency is understood to be a foreign exchange reserve that is being controlled and held by the governmental authorities as a store of value and as a medium of exchange.

A Fiat currency can be considered to be used as a currency reserve when it's issuing country maintains economic stability.

This stability serves as a source of guarantee that the currency would maintain its stability over a long period of time, thus making it reliable for the storage of wealth for the central banks.

When a fiat currency becomes a reserve currencyy, it can be used in international trade as a standard medium of exchange.

One of the world major currency like the US-dollar is accepted because it is used to facilitate seamless global transactions.

• ECONOMIC STABILITY:

Another advantage of fiat currency is that it plays a huge role in the stability of a nation's economy.

Fiat currency helps to provide the government with enough flexibility to mitigate financial crises, manage their economies and also promote growth.

Fiat currency gives the central banks authority over the supply of money in a nation.

Through the initiating of open market operations and the adjustment of interest rates, central bank has an influence borrowing and spending, thus helping to stimulate economic growth.

Also with the use of fiat currency, the government can manage exchange rates and this control is very important for economic stability.

And this helps a country to prevent abrupt currency fluctuations that can have a negative impact on trades and Investment.

Also, with the use of fiat currency, the central banks can easily inject liquidity into the financial system, thus avoiding bank runs and helping to mitigate risks, as the central banks are the lenders of last resort during financial crises.

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CONCLUSION

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There are indeed so many advantages of fiat currency.

This advantages are making us understand why fiat currency is being used to backup some cryptocurrency.

And we now see why this currencies are known to be stablecoins.

Please anticipate our next discussion and stay safe you all