What will a CBDC stablecoin actually look like?
Here is our pick of the 3 most important Stablecoin news stories during the week.
This question is still front of mind in the West, whilst in China it is decided and is in the roll-out phase. But first, I found this table useful in categorising the different kinds of currencies. The difference between each of the types of stablecoins is really quite important. Essentially in the West we are looking at Commercial Bank, Private and community Crypto. Whilst in China they are implementing a pure CBDC.
In Europe the fundamental question of why, what and how Commercial Banks will play in this new ecosystem, still has a long way to go. In this paper the authors argue Central bank digital currencies aren’t needed as digital cash substitutes.
- Many countries are researching and experimenting with central bank digital currencies.
- Economists Peter Bofinger and Thomas Hass argue that CBDCs may fail as a medium of exchange because of competition with private banks.
- However, they say, CBDCs could succeed as a store of value for “firms and large investors.”
And since “China’s adoption of digital central bank tokens is expected to be seamless as most of the nation’s digital payments already pass through companies like TenCent and AliPay and are already very popular in the country”, we can conclude that “the successful Shenzhen test means that a broad rollout is just a matter of time.”
Still, one thing was missing: a stamp of approval by the gatekeeper of not only the global payments system, but the protector of the dollar reserve system, SWIFT. But now China has that too.
As Reuters reports, “SWIFT, the global system for financial messaging and cross-border payments, has set up a joint venture with the Chinese central bank’s digital currency research institute and clearing centre, in a sign that China is exploring global use of its planned digital yuan.“
Actually, not just “exploring” but thanks to a year of testing and partial rollouts, Beijing is about to become the first country in the world set to launch the digital yuan, and with both the IMF’s and SWIFT’s blessing, it’s now just a matter of months if not weeks.
This is really about China taking another major step in its quest to move the world away from the dominant US dollar and position itself as a major power in the world’s financial markets.
China is clearly using it’s CBDC development as part of a bigger push to enlarge its position on the global stage and reduce reliance on the US Dollar. But to me the bigger question is the Euro. The US Dollar is big enough to maintain its status even if it is a little diminished, but being in number two position is so much more vulnerable. Hence I find the European Central Bank president Christine Lagarde’s ambivalent statement about the development of a CBDC in January, saying it was “going to take a good chunk of time to make sure it’s safe,” adding, “I would hope that it’s no more than five (years)”, just incredible!
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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