CBDC’s will not be trustless Digital Cash!
Here is our pick of the 3 most important Stablecoin news stories during the week.
Interesting debate this week on just what a Digital currency should be if it is issued by a Central Bank. As we all know good old fashioned cash, Bitcoin and most privately issued stablecoins have one thing in common, you do not have to identify yourself to own it. This is a good feature for criminals, but also for every day lawful citizens who do not want an arm of the Government to know about every little transaction or worse still, (because the data will be held centrally) for it to be a hackers honey pot and the consequences that could go with that.
The Full Remarks by Mr Agustín Carstens, General Manager of the BIS (the Central Bank for Central Bankers), at the Hoover Institution policy seminar, Basel, 27 January 2021 are below, but the abstract sums it up.
“A technological revolution is changing our economy and even money itself. In addition to improvements to existing payment systems, new digital currencies have been unleashed. Yet societies face two forks in the road in designing digital money. First, should digital currencies rely on a central authority or a decentralised governance system? Second, should access be based on verification of identity, or purely on cryptography?
The answer is that if digital currencies are needed, central banks should be the issuers and they should grant access based on identification. Central bank digital currencies (CBDCs) can combine novel digital technologies with the tried and trusted foundation of central banks. Developing CBDCs comes with a host of technological, legal and economic issues that warrant careful examination before issuance. Central banks – the guardians of stability – will proceed carefully, methodically and in line with their mandates. The BIS is supporting this international discussion, ensuring that central banks can continue learning from one another and can cooperate on key design issues.”
In the meantime privately issued stablecoins are growing at a rapid rate as the table below of the top four from CoinGecko demonstrates with the total market cap for all now over USD 38 billion. Tether dominates but the others are growing and gaining market share.
The largest of these privately issued coins is Tether, where concerns have been held for a long time and remain as to the level of transparency around the backing of the coin. My guess is that they are doing the same as a Central Bank and not backing 1 = 1 for every coin, rather they hold a reserve that they believe will defend against any run, a task that is a lot easier if you are, actually, a Central Bank.
So in summary, will you trust an arm of your or another Government if they tie your identity to a coin or will you prefer the higher levels of privacy on Bitcoin, Ethereum and privately issued stablecoins? The other question, that was not so subtly raised by the Central Bankers is should you even have a choice?
Many of the supporters of Blockchain, like that we can have rules, without rulers. In other words the rules are transparent and immutable when written into code. The recent Robinhood debacle is the opposite, rules are opaque and arbitrated on a unilateral basis by a group of men in a smoke filled room. My belief is that enough people have come to like this new type of trust that Blockchain affords and even will demand it, so that when Herr Carstens or any other Central Banker puts themselves forward as a rule maker and arbiter they will be resisted.
Times have changed – we can keep our cash and transact in a modern way!
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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