Here is our pick of the 3 most important Stablecoin news stories during the week.
CBDC development and research continues.
CBDC is the ultimate stablecoin, but the design and operational choices are not straightforward and involve substantial implementation risk (unless of course you are China). So we will not be seeing any Silicon Valley “move fast and break things” attitude in this space.
Firstly, for the current status, this excellent global tracker is a good tool. Summary findings as of today are:
- 87 countries (representing over 90 percent of global GDP) are exploring a CBDC. In May 2020, only 35 countries were considering a CBDC.
- 9 countries have now fully launched a digital currency. Nigeria is the latest country to launch a CBDC, the e-Naira, the first outside the Caribbean.
- The latest cross border payment tests is Project Dunbar – a partnership between South Africa, Singapore, Malaysia, and Australia.
- Of the countries with the 4 largest central banks (the US, the Euro Area, Japan, and the UK), the United States is furthest behind.
- 14 countries, including China and South Korea, are now in the pilot stage with their CBDCs and preparing a possible full launch.
- Without new standards and international coordination, the financial system may face a significant interoperability problem in the future.
In Europe things are progressing slowly, the ECB is currently carrying out in-house experiments with the digital euro and expects to start working on a prototype at the end of 2023. Eurozone governors will then decide whether minting a digital euro is worth the trouble. If they do, the virtual currency could be ready by 2025 — at the earliest.
That timetable works fine for the EU’s legislative process. They plan to introduce a bill in 2023, which will have to go through negotiations within EU capitals and Parliament before it can become law.
A Bank consortium called Fnality is developing a system of CBDC and Stablecoins that places commercial banks at the centre of retail distribution, as happens in today’s Fiat system. Ahead of its launch in October, Fnality, the blockchain payment system owned by 15 financial institutions, executed a trial payment to settle a security issuance. Natwest acted as dealer and issuer for the pilot transaction, and Santander invested in the digital asset.
This proof of concept involved two separate blockchain networks, the Fnality Ecosystem Testnet for payments and the public Ethereum blockchain on which the digital security was issued. Both networks are Ethereum based. The debt was issued using Nivaura’s automated workflow solution. Adhara, which has worked with Fnality since early 2020, helped develop the Fnality Ecosystem TestNet.
A key feature of the Fnality payment system is that it’s backed by money held in a central bank account, making the settlement token a synthetic CBDC. However, the company prefers to position itself as a payment system.
In the USA this week we got a sense of where regulation is heading with Treasury’s push to move stablecoin issuers into a banking regime met with solid resistance from the House Financial Services Committee, though other reporting and disclosure requirements are certainly up for discussion. The biggest takeaway was the prevailing bipartisanship in opposition to major banks, which plays strongly in favour of the crypto.
So in summary, progress is slow but steady as the industry, regulators and politicians try to figure the best path forward, unless you are China or some small sovereign whose Fiat currency is already under immense pressure to exist.
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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