Oh just FUD it for a while and see what happens!
Here is our pick of the 3 most important Stablecoin news stories during the week.
This week saw the slow, cautious progress by Central Banks combined with a continued program by their supporters to stop or slow the growth of the existing privately issued stablecoin and Crypto ecosystem.
A two-year investigation period will first involve discussions of policy objectives and use cases for the remainder of the year, followed by tradeoffs between privacy and other policy objectives such as anti-money laundering in early 2022.
After that, the impact on the financial system, particularly the drain on bank deposits and how to manage this, as well as the use of cash, are on the agenda. Another important element of the investigation will be the business models of private and public entities involved with the digital euro.
After the investigation phase, and a decision to continue in 2023, the actual development is scheduled to take around three years, which means the ECB has quietly added another year to the development phase, compared to its statements a few months ago.
Here comes der FUD (Fear Uncertainty and Doubt), it seems to be falling into three categories, environmental (will not survive scrutiny as current system is also expensive), risky (will not survive because people are not betting all their wealth on Crypto) and evil (will not survive because normal people are using it for legitimate things and it is never popular to call normal people evil).
Here is the risky FUD, in a heavily debunked paper, the claim is that if left unchecked, the world of stablecoins could evolve into one reminiscent of the 19th century’s free banking period in the U.S., according to two prominent financial experts.
Yale economist Gary Gorton and U.S. Federal Reserve attorney Jeffery Zhang said there existed systemic risk to the financial system by a “digital form of privately produced money” pegged one-to-one with “safe” assets.
In an academic paper titled “Taming Wildcat Stablecoins” released Saturday, the pair describe similarities they see in stablecoins with that of privately issued “wildcat” bank money in the past. Basically, they argue that if it is not made by a Government, it is not safe.
But are stablecoins and CBDC’s really an innovation or are they just a copy of the past version of money? Henry Ford was famous for saying if he listened to his customers he would have just built a faster horse!
Bitcoin’s popularity has unleashed a race for digital money dominance, which is likely to intensify with the emergence of Central Bank Digital Currencies (CBDCs). In a 2021 survey of central banks, 86% of respondents indicated they are actively researching the potential for CBDCs. The question that emerges is how will CBDCs live alongside borderless cryptocurrencies like bitcoin?
This paper is a three-part study on CBDCs within the context of the evolution of money. Readers will find that CBDCs will play an important role in the normalization of money as a digital concept. The paper outlines several factors that will contribute to the rise of CBDCs in the coming years, as well as the design limitations of CBDCs that will drive demand back to bitcoin.
So in summary, Central Banks are having a lot of trouble with design choices and hence are moving forward very slowly, while their supporters are trying at the very least to slow the rapid growth of the current stablecoin and Crypto ecosystem, but regardless, we are left with an interesting question. Does merely transforming current money into a Digital form make a compelling innovation or will it dwindle next to the more interesting stuff happening in Crypto land?
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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