After Libra, The Digital Yuan and COVID-19
Here is our pick of the 3 most important Stablecoin news stories during the week.
This paper from Oxford University explores these three catalysts causing a major rethink and re-engineering of the global money system.
Libra, the Digital Yuan and COVID-19 have each challenged policy makers and regulators globally. While Bitcoin and its progeny have been able to be safely ignored to date, global stablecoins (such as Libra) represent a real threat to existing payments infrastructure and a unique opportunity for payment systems to evolve. A broad roll-out of SDCs (State Digital Currencies) triggered by the Digital Yuan and COVID-19 is now likely across the globe.
One of the key recommendations in the paper is that rather than build blockchain based systems the Central Banks should focus on fixing the current system first.
The Central Bankers Bank, the Bank of International Settlements (BIS) seems to agree. A report by the Committee on Payments and Market Infrastructures said cross border payments are set to increase from $20 trillion in 2019 to $30 trillion by 2030.
It proposes the development of a roadmap to enhance cross-border payments, which will be delivered to the G20 Finance Ministers and Central Bank Governors in October 2020.
Opening central bank payment infrastructure for longer would speed up payments that involve swapping two currencies to complete, the CPMI report said, adding that a centralised cross-border utility of the “know your customer” (KYC) data needed for anti-money laundering checks would also streamline payments.
This is pretty big! The implication is that some Institution (probably the BIS) would hold KYC data centrally and outside of any one sovereign for Financial Institutions to access and thereby speed-up and improve the whole process. Creating an obvious and large privacy attack vector and loss of individual sovereign control. Big decision for the G20 in October!
This article from Reuters explores the BIS report and its implications a little further. Regulators plot path for cross-border payments to counter Facebook
In Japan we have seen progress on a Digital Japanese yen by one of Japan’s largest commercial Banks. Mitsubishi UFJ Financial Group, or MUFGt, the fifth largest bank in the world, is reportedly planning to issue its own digital currency in the second half of 2020. The MUFG token is designed as a blockchain-based stablecoin pegged 1:1 to the Japanese yen
So this week we saw calls for Central Banks to fix the current system first rather than focus on blockchain solutions, for the G20 to implement a central KYC database and in Japan progress is made on the roll-out of a Digital Yen. All of these initiatives have received a boost and been given extra drive from Libra, the Digital Yuan and COVID-19.
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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