Cross border payments part 3: stablecoins is the nearly but not quite yet disruptor.

Quiz; what do USD Tokens, Libra, Single Currency CBDC, Synthetic  Basket CBDC all have in common?

(CBDC = Central Bank Digital Currency).

Answer: they are all Stablecoins

Stablecoins could disrupt the cross border payments business. Not today, when you still have to use the rails described in Part 1 & 2. Maybe tomorrow it will be possible. Stablecoins for cross border payments is a nearly but not quite yet story.

Before diving into stablecoins for cross border payments, I need to risk getting flamed by demolishing the use of VolCoins for payment.

A VolCoin is any coin where the price changes a lot – it is volatile rather than stable.

Back in 2015 (an eon ago in crypto time) I explained why Bitcoin is not suitable as an interim store of value-for a payment rail.

It is not just Bitcoin, it is any VolCoin. Ethereum is good and useful technology. So is Ripple. However using ETH or XRP as an interim store of value for a payment rail makes no sense for the reasons I explained in that 2015 post – the price is too volatile.

Now let’s look at how each of the 4 different types of Stablecoins could disrupt the  cross border payments business

USD Tokens

Examples = Tether, USD Coin

This is not legal tender, but stable against the current global reserve currency. A USD Token may not be accepted in China because of geo political tensions between USA and China and China’s exchange controls. As the world moves to two spheres of influence (USA and China), a currency token linked to one of those spheres becomes less useful.

Libra from Facebook 

This is not legal tender, but with a few billion users, their global reach is bigger than most sovereign countries so Libra will be accepted by most merchants.Libra is much discussed and anticipated but more than 12 months after it was announced, it is still not a launched product that anybody can use.

Single Currency CBDC.

A CBDC is legal tender controlled by sovereign countries, but transacted on cypto networks.

Can be any currency but biggest impact will be USD, EUR, CNY, YEN, GBP. Every major country is considering issuing a CBDC.

Synthetic Basket CBDC 

IMF is considering issuing either a CBDC or a token based on the Special Drawing Right basket (SDR = basket of five currencies— USD, EUR, CNY, YEN, GBP).  If IMF issue it as a CBDC it will be legal tender. If IMF issue it as a token it will have no more market power than any other synthetic basket of currencies (which can be created from Fiat currencies or algorithmically).

Bernard Lunn is Editor and CEO of Daily Fintech and author of The Blockchain Economy

Daily Fintech’s original insight is made available to you for US$143 a year (which equates to $2.75 per week). $2.75 buys you a coffee (maybe), or the cost of a week’s subscription to the global Fintech blog – caffeine for the mind that could be worth $ millions.

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