Here is our pick of the 3 most important Stablecoin news stories during the week.
Last week started with several stories about what could go wrong.
Firstly, if risks from DeFi are not well managed, stablecoins (in BIS’s opionion) are prone to runs and possible fire sales of the assets backing them could generate funding shocks for companies and banks, feeding through to the wider financial system, the BIS said. There has not been a run yet or even a hurried walk, however they see a risk.
Then, Sir Jeremy Fleming, head of Britain’s electronic intelligence agency, said China was now the “biggest strategic issue” facing the UK, and was expanding its espionage operations and seeking control of digital infrastructure, The Financial Times reported.
China’s digital renminbi, which is being heavily promoted ahead of the Beijing winter Olympics, risks becoming a tool to surveil users and exert control over global currency transactions, the director of UK signals intelligence agency GCHQ has warned. Maybe he has not seen the deisgns of CBDC’s being contemplated in the West, which would have the same issue.
Meanwhile, the Bank for International Settlements (BIS) published a paper on cross-border payment system interoperability. It illustrates the public and private sector options using four stylized models, ordered in increasing complexity and cost but also greater efficiency – a single access point, bilateral link, hub and spoke or a common platform (see below). The BIS Innovation Hub is putting theory into practice with several innovative projects to foster interoperability across the four stylized models.
“Cross-border payments, both wholesale and retail, must become faster, cheaper, more transparent and more accessible, while maintaining their safety and security. If these goals are to be realised, it is necessary to achieve interoperability between payment systems across borders. Payment system interoperability allows participants ‒ banks and other payment service providers (PSPs) ‒ from different systems or jurisdictions to conduct, clear and settle payments across systems without participating in multiple systems. Interoperability is a means, not an end; the aim is to allow banks and other PSPs from different systems or jurisdictions to transfer payments, so that end users can seamlessly transact with each other regardless of their geographic location or choice of PSP.”
So in summary, a lot could go wrong but we have to improve the global financial system we have today as it really is not fit for a modern interconnected world. At least that is something we can all agree on!
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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