There is No Interest in Fiat Currencies!
Here is our pick of the 3 most important Stablecoin news stories during the week:
In these difficult times it is hard to find consensus on anything. However, just about everyone agrees that as a result of this Virus and subsequently when the money printer goes Brrr we are in for zero or negative interest rates for a very long time.
This has profound implications for the Fiat money world. For years Interest rates were like the “Killer App” for Banks and Fiat money. You parked spare cash there, paid or all your daily bills and earned some pocket change. Now, that is all gone and new Fintech players have just had a societal barrier of entry removed.
At the Institutional level a similar thing happened, when the money was not allocated to Investments it was parked as cash or Government Bonds and earned interest. That too is now largely gone.
This raises a couple of interesting questions, are CBDC (Central Bank Digital Currencies) a friend or foe in the competition between traditional Banks and Credit/Debit processing cards on one side and Fintech on the other?
As Francis Coppola put it this week in an article on Facebook/Libra’s change of direction:
“IF YOU REALLY WANT TO CHALLENGE GOVERNMENT AUTHORITY, YOU DON’T TIE YOURSELF INTO THE EXISTING SYSTEM.”
CBDC are being proposed in two flavours 1) Direct to consumer or 2) via a licenced entity such as a Bank (as they do with physical cash today) or a potentially in the future Fintech player. Facebook has decided the second path will be the one chosen. But there is a third way outside of the whole existing system itself and maybe with a little “Interest” thrown in for good measure.
The second question the new “normal” zero interest rate environment raises is for Investors. How and where do they hunt for yield? Crypto, Stablecoins and Fintech now have a great opportunity to provide the answer outside of the old system.
- Francis Coppola in an article for Coindesk How a Fatal Weakness Forced Libra to Capitulate from a model outside the regulatory system to support CBDC’s and the existing regulatory infrastructure.
- Coindesk article on how Digital Currencies Could Replace Low-Interest Bank Accounts, Says UN Expert as the cost of an intermediary in terms of a Bank is no longer essential.
- Coindesk article that imagines how this low interest future will play out for Investors hungry for yield and how they are going to love Crypto Bitcoin Is a Big Opportunity for Investors in the Debt-Fueled Roaring Twenties
Finally, what may all this look like in 3 years time. SEBA the first regulated (FINMA) Swiss Bank that manages both Crypto and Fiat Launches Crypto-University in Switzerland to ensure more of us understand what this new world looks like and how it operates.
Alan Scott is an expert in the FX market and has been working in the domain of stablecoins for many years.
We have a self imposed constraint of 3 news stories per week because we serve busy senior Fintech leaders who just want succinct and important information.
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