Who takes the risk, owns it.
Here is our pick of the 3 most important Stablecoin news stories during the week.
This week the IMF released a new working paper A Survey of Research on Retail Central Bank Digital Currency. It is a very good starting point for anyone wanting to get a broad overview and review of all the current CBDC research.
I was struck by one graphic depicting the retail CBDC Risk Landscape. Retail CBDC is where the Central Bank chooses to not only manage the money ecosystem but also the direct customer relationship. Is a Central Bank really able to take on this much risk? It is one thing to denigrate and criticize facebook, for harvesting a lot of data, a Bank for overcharging, or a Crypto Exchange for being hacked, but do we really want to put our Lender of Last Resort in that sort of firing line, when an inevitable operational screw-up happens?
So if a Central Bank will find it difficult to take on the operational risk of running a Digital coin then what about Facebook? UC Berkeley professor Barry Eichengreen argues that Facebook’s planned Libra stablecoin faces too many “insoluble” problems, and too much resistance from governments, to ever launch.
“Libra is an interesting idea that will never see the light of day,” he told the Unitize conference on July 10. ‘Libra Will Never See The Light Of Day’: Monetary Historian
However, in China, the Central Bank (PBoC) is actively finding partners to take the operational risk. Chinese ride-hailing giant Didi Chuxing Technology Co. will test a pilot version of China’s digital currency, according to a company statement on Wednesday that announced a “strategic partnership” with the central bank’s Digital Currency Research Institute. China is testing its digital currency on a new platform—with 500 million users
Also in this report China’s CBDC Project to Collaborate With More Domestic Enterprises on the development of China’s central bank digital currency. On July 8, a major domestic e-commerce platform and a video sharing site both joined the CBDC project, according to local news.
Companies Meituan and Bilibilibili have apparently both begun to cooperate with a number of banks involved in the digital Yuan project. Meituan is a major service platform with over 240 million consumers and five million local merchants, and Bilibilibili is known as China’s largest video sharing website.
So the western Central Banks have a choice, embrace Facebook and other FinTech players, so that they own the operational risk whilst the CB withdraws to overseer of the ecosystem, or, do something even more centralised than the most centralised large economy in the world and own it themselves (with all of the reputational consequences that will follow in the case of a stuff-up). Decision time!
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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