Are Stablecoins just replacements for cash?
Here is our pick of the 3 most important Stablecoin news stories during the week:
Where is the innovation in CBDC? This week we look at the Chinese Central Bank’s CBDC and see that it operates in the same manner as cash today. That is, Minted by the Central Bank (PBoC) and distributed to consumers by Commercial Banks. There is no direct access from the consumer to the Central Bank. If you want to change your money (either cash or held in an Account) into the nice bright new Digital coin, you will have to visit a participating Bank to perform that exchange.
Likewise the other roll-out reported on this week by the Central Bank in Lithuania.
The problem faced by Central Banks if they were to fundamentally change the system, is explored by the Federal Reserve of Philadelphia Working Paper Central Bank Digital Currency: Central Banking for All?
The first lines of the Abstract: “The introduction of a central bank digital currency (CBDC) allows the central bank to engage in large-scale intermediation by competing with private financial intermediaries for deposits. Yet, since a central bank is not an investment expert, it cannot invest in long-term projects itself, but relies on investment banks to do so.”
In other words both Central and Commercial Banks have different skills sets that compliment each other. One is protective, the other risk or Alpha seeking.
So will CBDC’s just replace cash using the same Institutional rails we have today?
- Beyond the Cashless Society: Chinese Professors Explain CBDC “DCEP (Digital Currency Electronic Payment) was first brought to the table as part of a broader financial digitalization vision of the Chinese government,” said Dr. Ben Shenglin. “Chinese regulators have long been trying to build a digital finance and payment infrastructure; meanwhile, they were not happy watching all these decentralized and speculative cryptocurrencies circulating in society. Secondly, the central authority may have wanted to create an alternative for ‘too big to fail’ third parties like Alipay and WeChat Pay. Lastly, the timing is interesting; PBOC may have been pressured to issue the currency after the announcement of other large-scale digital currencies, like Libra,” explained the Dean. “In DCEP, there is a two-tier process: PBoC cooperates with private Chinese banks and exchanges cash with DCEP, and private banks will exchange the DCEP with the public,” Ben Shenglin said.
- Lithuania Is Trialing a CBDC No One Can Use – And That’s by Design LBCoin’s planned July launch follows more than two years of blockchain experiments by the Bank of Lithuania, at a time when interest is mounting in central bank digital currencies (CBDCs).
- Report: Less Than 6 Accounts Control 80% of Wealth on Top Stablecoins A report published by CoinMetrics has found extreme wealth centralization among many top stablecoins, with at least 80% of the total capitalization for five top stable tokens being held in less than six accounts.
A low note to end on is that we may end up with CDBC’s containing less innovation than we hoped for and a few people will end up owning a lot of them.
Alan Scott is an expert in the FX market and has been working in the domain of stablecoins for many years.
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