Opening up the wholesale FX market to the many and not just the few.

 

Here is our pick of the 3 most important Stablecoin news stories during the week.

This week we saw some major advances in both the thinking behind new and developing stablecoins and the operation of existing ones.  The common theme is that maybe in the future we can imagine a world where the FX market is no longer bifurcated into wholesale and retail but one single market where we can all access as equal participants.

Firstly in Japan, more than 30 major Japanese firms will begin experiments next year towards issuing a common, private digital currency to promote digitalisation of the Yen in one of the world’s most cash-loving countries, the group’s organising body said on Thursday.

The group, consisting of Japan’s three biggest banks as well as brokerages, telecommunication firms, utilities and retailers, will conduct experiments for issuing a digital currency that will use a common settlement platform.

Private banks will be in charge of issuing the digital currency in the experiments, though the possibility of other entities issuing a digital yen will not be ruled out.

Japan Inc to begin experiments issuing digital yen

 

Another private stablecoin from payments startup Circle is getting political.  The stablecoin issuer is working with the U.S. government to bypass Nicolás Maduro and support the Bolivarian Republic of Venezuela led by Juan Guaidó.

Circle is using USDC (USDC, -0.05%), the dollar-pegged stablecoin it issues with Coinbase, to distribute relief funds to medical workers and other Venezuelan locals, it announced Friday. 

US Taps Circle’s USDC for ‘Foreign Policy’ Goals in Venezuela

 

For central banks contemplating issuing a digital currency, there could be advantages to getting it done soon, according to a European Central Bank study.  A country without a digital currency would lose some control over its monetary policy by being forced to react more strongly to spillovers from shocks in nations that do have such an instrument, researchers Massimo Minesso Ferrari, Arnaud Mehl, and Livio Stracca found.

It’s Better to Be First on Digital Currencies, ECB Study Finds

 

So in summary, maybe there is some advantage of being a first mover in the stablecoin business, as the future will be one where millions of people who do not have access to the wholesale FX market today, will have a choice and they will be influenced by brand and scale.  When the pandemic broke back in March trillions moved overnight in the wholesale market to the safety of USD causing a 20% appreciation in price (most of which has since unwound), but we may be approaching a future where the many can follow suit not just a few who have access to that wholesale market. 

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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.

For context on stablecoins please read this introductory interview with Alan “How stablecoins will change our world” and read articles tagged stablecoin in our archives. 

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