Privately issued Stablecoins are a BIG deal!
Here is our pick of the 3 most important Stablecoin news stories during the week.
In January 2021, stablecoins processed $308 billion in transactions compared to bitcoin’s $297 billion. Clearly people find them a valuable short term store of value as they allocate funds across the entire Crypto ecosystem.
Which raises the question, will CBDC’s be a gigantic flop! Why would you put your money with a Central Bank when it cannot be used for Crypto entry and exits and gives you nothing new over existing electronic money in PayPal, Venmo and Square.
Broadly there are two risks with a CBDC.
- What it would do to the existing Banking system (which is a fundamental pillar of the entire Fiat structure), and
- Poor consumer take-up, making the whole exercise look like an expensive failure.
But what if the State tipped the scales a little bit with the excuse of a level playing field? This article explores how Regulators could hobble privately issued stablecoins to even up the game.
The other risk, of what will happen to the existing banking system seems to be top of mind in Russia, where the Central Bank is moving forward with a two tiered model. Just like physical cash the Central Bank is in control of issuance and redemption, whilst the Banks look after distribution and customer care.
The world’s oldest Central Bank announced that they will be continuing their trail into next year.
“The Riksbank said it would continue developing a technical solution for a central bank-issued e-krona “as a complement to cash,” with the primary objective being for the bank to increase its knowledge around the technology.”
The key point is “as a complement to cash” not a straight one for one replacement of cash. I think they understand that as a straight cash replacement it will fail and not meet any policy objectives the state may have. So it has to be something different.
In the meantime, Facebook’s rebranded Diem is apparently on track to launch in the next month or so.
So in summary, Central Banks are facing twin challenges of not damaging the existing banking system which is a fundamental foundation leg of the current Fiat structure and making a new product attractive enough (to both consumers and as a public policy tool) that it doesn’t just fizzle out.
In the meantime Facebook is coming and the current private issuers are growing their business at a rapid rate. Can the stable door be shut or has the horse effectively already bolted!
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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