Central Bankers can talk the talk, but can they walk the talk?
Here is our pick of the 3 most important Stablecoin news stories during the week.
This week we saw a number of Central Bankers talking about CDBC’s and saying now is time!
In a magazine called Central Banking, so presumably aimed at Central Bankers, Mark Carney called on central banks to embrace digital forms of public money, or risk allowing tech firms to dominate a “new world” of money. The former Bank of England governor said the world was heading for a new monetary system, potentially with a greater role for distributed forms of finance. But he cautioned that past episodes in which multiple forms of private money fought for supremacy led to inefficiency and instability.
Then in a speech at this year’s BIS Annual General meeting last week, Mr Hyun Song Shin, Economic Adviser and Head of Research, lays out the design choices to put CBDC’s into practice.
“The foundation of the monetary system is trust in the currency. Central bank digital currencies (CBDCs) build on this trust, offering in digital form the unique advantages of central bank money. They should operate in a two-tier monetary system, in which the private sector and central bank each focus on what they do best. CBDCs should be based on digital identification, with institutional and technological safeguards to ensure privacy. CBDCs can serve the public interest as an open platform that is conducive to a virtuous circle of greater access, lower costs and innovation for better services. Multi-CBDC arrangements can promote more efficient cross-border payments. Overall, CBDCs can meet the “triple imperative” of competition, data privacy and integrity that is raised by the centrality of data in the digital economy.”
I thought this diagram of the current system compared to a potential CBDC implementation was interesting.
Then we have the other side of the coin (metaphorically and literally). The cryptocurrency industry won’t stop trying to make a purely algorithmic stablecoin work. An algorithmic stablecoin is one that can keep its peg using only software and rules. If one ever works, it could scale infinitely, to whatever size an economy needs with much greater efficiency than existing money and monetary policy.
So this week, we saw the Central Bankers switch from passive on CBDC’s to aggressive and at the same time we see those crazy folks in Crypto double down on their efforts to do them completely out of a job!
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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