Who are the innovation leaders?
Here is our pick of the 3 most important Stablecoin news stories during the week.
As we enter this new age of Digital Currencies, who are the leaders? Is it Central Banks such as Peoples Bank of China (PBoC) or Commercial Banks such as ING Pyctor, Societe General Forge and Standard Chartered Zodia or Fintech either established such as Facebook’s Diem or more start-up such as Tether, Circle or the myriad of DeFi service providers?
The International Monetary Fund (IMF) estimates that central bank currencies will confront major obstacles in a rapidly digitizing financial system.
In a new blog post, the IMF says that as digital currencies increasingly crop up and the financial sector rapidly evolves, the public and private economic sectors will clash and put pressure on central banks to innovate and keep up with tech powerhouses.
The IMF believes that the best way for central banks to compete with the fast-paced digital currency revolution is to build a system where the private sector can convert its assets into a central bank currency.
“The answer lies in a fundamental symbiotic relationship: the option to redeem private money into perfectly safe and liquid public money, be it notes and coins, or central bank reserves held by selected banks…
In short, the option of redemption into central bank currency is essential for stability, interoperability, innovation, and diversity of privately-issued money, be it a bank account or other. A system with just private money would be far too risky. And one with just central bank currency could miss out on important innovations. Each form of money builds on the other to deliver today’s dual money system – a balance that has served us well.”
The Bank for International Settlements through it’s Innovation centres is partnering with the central banks of China, Hong Kong, Thailand and the UAE to conduct new tests of cross-border central bank digital currency. The BIS innovation hub in Hong Kong, run jointly with the Hong Kong Monetary Authority, will now work with the People’s Bank of China’s Digital Currency Institute, as well as the Bank of Thailand and Central Bank of the UAE, to test cross-border CBDC payments.
In the Private sector a long-standing legal drama finally found resolution on Feb. 23, with the New York Attorney General’s office announcing that it had come to a settlement with cryptocurrency exchange Bitfinex after a 22-month inquiry into whether the company had been trying to cover up its losses — touted to be worth $850 million — by misrepresenting the degree to which its Tether (USDT) reserves were backed by fiat collateral.
“The key point in this settlement is not the elimination of the lawsuit, but the increased commitment to transparency. The risk from USDT still exists, but increased transparency should cement its lead in transaction volumes.”
So in summary, we are seeing both a race and a clash as Public Central Banks are driving and reacting to innovation as are both the Commercial Banking sector and Fintech enterprise. Let’s hope the winners are the ones who provide the best solutions to our real world problems and not those that were best able to use or construct regulatory moats.
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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