Something old – something new?
Here is our pick of the 3 most important Stablecoin news stories during the week.
This week we saw advances with old style stablecoins as well as with the new bright shiny Digital ones.
The original stablecoin, The International Monetary Fund’s special drawing right or SDR created in 1969 to prepare for a new dollar crisis – is undergoing a renaissance, with important worldwide repercussions. The announcement of by far the largest-ever increase in SDR allocations, which will greatly improve the liquidity of many developing nations, signals alignment between the US and China in a key area of global monetary power.
The massive increase in SDR reserves – which can be converted into its five constituents: the dollar (42%), euro (31%), renminbi (11%), yen (8%) and sterling (8%) – indirectly boosts the Chinese currency’s international reserve role. As Geoffrey Yu of Bank of New York Mellon wrote in July 2020, ‘China may have an additional interest in pushing for a general [SDR] issue, as it is a shortcut to a significant de jure nominal increase in the global level of renminbi reserves.’
This week also saw the UK take another step towards a Bank of England digital currency after the chancellor Rishi Sunak announced a top-level taskforce to explore the benefits and risks of the idea.
Sunak said he wanted the City to be at the forefront of innovation and to take advantage of regulatory freedom after Brexit. The Treasury said two new forums would be established to engage technical experts and key stakeholders including financial institutions, retailers, businesses, civil society groups and consumers.
In the meantime, the ECB published an overview of the consultation responses it received on its digital euro survey. The results show a variety of demands a digital euro would need to fulfil, including privacy, security, low costs and ease of use.
Clearly, German citizens are engaged in the CBDC space with nearly half of the respondents coming from there. A total of 43% of respondents to the ECB’s public consultation named privacy as the most important consideration for any eurozone central bank digital currency (CBDC). Another 18% of participants chose security as the most important issue, while 11% selected the ability to pay across eurozone countries.
Christine Lagagrde is quoted as saying “the feature citizens say they would value most is privacy, but they don’t want such a digital currency to be anonymous”. Which is an interesting interpretation of the data and rather self serving.
The European Central Bank makes clear that the development of its “digital euro” and in the UK the Bank of England with its “digital pound” will take several years. Yet given the geopolitical context and the potential impact, banks should better pay attention.
These are still early days but the fight for who gets to control what is well and truly underway. The more important question is not even being asked, are they building something old or something new? My view, for what it is worth, is it had better be something new that works in consumers rather than regulators interests or it will die in the marketplace whenever it is finally released.
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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