What type of Digital currency is best?
Here is our pick of the 3 most important Stablecoin news stories during the week.
I like this quote from Agustín Carstens at BIS for the sheer chutzpah. “The answer is that if digital currencies are needed, central banks should be the issuers and they should grant access based on identification”. And, there is the big catch, if you tie identity to ownership of currency, which we do not do today with physical cash, then the only one that can be trusted is a Central Bank with a Government and State behind them, either in a direct sense or indirect in terms of via regulation or licence over commercial Banks. In other words Agustin wants to keep the status quo.
However, Agustin along with other senior officials from central banks and the Bank for International Settlements (BIS) have warned against trying to move too fast to issue central bank digital currency (CBDC). In remarks on March 22, BIS general manager Agustín Carstens, Federal Reserve chair Jerome Powell and Deutsche Bundesbank president Jens Weidmann all said central banks could get into trouble if they tried to move too quickly.
This article in Forbes expands on the position being increasingly adopted by Western Central Banks that they should preserve the status quo and take small cautious steps with any Digital currency.
Ultimately, digital currencies must be scalable to serve nations, modes of settlement must be safe, technological infrastructure must be reliable and secure, and regulation must be strong to protect the high degree of trust that citizens have placed in central banks.”
In the meantime, Jamaica’s Central Bank revealed that it’s CBDC pilot will commence in May under the aegis of their Fintech Regulatory Sandbox. ECurrency Mint, an Irish technology company will support the central bank in testing protocols during the pilot stage scheduled to be completed by December.
Then in the brave new world of Decentralized Finance (or DeFi) idealists want to create perfectly free financial ecosystems that can’t be subverted by governments, corporations or regulators. They also want their decentralized nirvana to be equipped with stablecoins so users can be protected from price craziness.
Therein lies the contradiction. Are decentralized anarchic systems, those that have no link to existing centralized institutions, capable of creating stability? Or are they too unanchored to generate the traction necessary for a stablecoin to be, well, stable?
In summary, we have on one side the established Fiat industry fighting to remain at the centre of any new system, while cautiously moving forward, and on the other side a group in the DeFi world working to completely supplant them at breakneck speed! It seems to me we have three choices, actively support one side or the other or get some popcorn and sit back to watch the spectacle.
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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